EN EN

EUROPEAN COMMISSION

Brussels, 22.2.2017

SWD(2017) 83 final

COMMISSION STAFF WORKING DOCUMENT

Country Report Malta 2017

Accompanying the document

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE

EUROGROUP

2017 European Semester: Assessment of progress on structural reforms,

prevention and correction of macroeconomic imbalances, and results of in-depth reviews

under Regulation (EU) No 1176/2011

{COM(2017) 90 final}

{SWD(2017) 67 final to SWD(2017) 93 final}

Executive summary 1

1. Economic situation and outlook 3

2. Progress with country-specific recommendations 10

3. Reform priorities 12

3.1. Public finances and taxation 12

3.2. Financial sector 17

3.3. Labour market, education and social policies 18

3.4. Investment 24

3.5. Sectoral policies 29

3.6. Public administration 32

A. Overview Table 35

B. MIP Scoreboard 38

C. Standard Tables 39

References 444

LIST OF TABLES

1.1. Financial soundness indicators, core domestic banks 6

1.2. Key economic, financial and social indicators 9

3.5.1. Selected targets of National Transport Strategy and Operational Transport Master Plan 30

B.1. The MIP scoreboard for Malta 38

C.1. Financial market indicators 39

C.2. Labour market and social indicators 40

C.3. Labour market and social indicators (continued) 41

C.4. Product market performance and policy indicators 42

C.5. Green growth 43

LIST OF GRAPHS

1.1. External and domestic demand, contributions to growth 3

1.2. Contributions to potential growth 3

1.3. Overall HICP inflation 4

CONTENTS

1.4. Employment developments 4

1.5. Real labour productivity per person 5

1.6. Current account developments 6

1.7. Underlying current account balance 6

1.8. Trends in bank lending, % of GDP 7

1.9. Breakdown of improvement in structural balance, % of GDP 7

3.1.1. Breakdown of tax revenue by detailed tax categories in 2015, MT and EU28 (% of GDP) 12

3.1.2. General government employment, percentage of total employment 13

3.1.3. Charges for the use of intellectual property, 2015 15

3.1.4. Components of total age-related expenditure 15

3.3.1. Time trends in labour market participation rates of women by age group 18

3.3.2. Female employment rates, 2015 18

3.3.3. Labour shortages as reported by the industry, services and construction sectors 19

3.3.4. Foreign employment, by occupational level 20

3.3.5. At-risk-of-poverty-and-social-exclusion rate, different groups 20

3.3.6. Population distribution by educational attainment and country of birth 21

3.4.1. Investment dynamics in selected Member States 24

3.4.2. Main components of investment in Malta 24

3.4.3. Construction sector indicators 25

3.4.4. Housing price overvaluation gap with respect to main supply and demand fundamentals 26

3.4.5. Number of public-private co-publications per million population 26

3.6.1. Institutional delivery indicator, Malta and neighbouring Member States 32

3.6.2. Public Administration Responsiveness to SME needs - Malta 2015 -Variation with respect to

EU average (in number of standard deviations) 33

LIST OF BOXES

1.1. The gaming sector 8

2.1. CSR implementation table 10

2.2. Contribution of the EU Budget to structural change 11

3.3.1. Selected highlights making-work-pay measures 212

1

This report assesses Malta’s economy in the light

of the European Commission’s Annual Growth

Survey published on 16 November 2016. In the

survey, the Commission calls on the EU Member

States to redouble their efforts on the three

elements of the virtuous triangle of economic

policy — boosting investment, pursuing structural

reforms and ensuring responsible fiscal policies. In

so doing, EU Member States should focus on

improving social fairness in order to deliver more

inclusive growth.

Economic activity has eased somewhat, but

remains buoyant. Real GDP growth was among

the highest in the EU in 2014-15, reaching 7.9%,

driven by strong net service exports, robust private

consumption and a surge in investment, partly due

to one-off factors. Growth eased somewhat in

2016, but is forecast to have remained strong at

4%. Positive developments have also been

observed in competitiveness, the sustainability of

the external position and private indebtedness.

Moreover, employment growth is among the

highest in the EU, in particular due to the services

sector. The unemployment rate has dropped to a

record low of below 5%. Net immigration flows

helped to offset emerging skill gaps and labour

shortages.

Public finances have also improved. Strong

economic growth boosted tax revenues, in

particular direct taxes. Some efforts on the

expenditure side have also helped to reduce the

structural budget deficit. The gross government

debt is estimated to have dropped below 60% of

GDP for the first time since 1998. Despite some

progress, challenges concerning tax compliance

remain.

Overall, limited progress has been made in

addressing the 2016 country-specific

recommendations. Measures have been taken to

improve the sustainability of public finances,

particularly regarding age-related budgetary costs.

The full impact of these measures on public

expenditure, however, is not yet certain. Some

progress has also been made in strengthening

labour supply by improving access to and

participation in lifelong learning, with a focus on

the low-skilled.

Regarding the progress in reaching the national

targets under the Europe 2020 strategy, Malta has

made progress towards its target on employment.

However, there appears to remain a gap with

respect to the targets for reducing greenhouse

gases, raising R&D expenditure, increasing

renewable energy provision, improving energy

efficiency, reducing early school leaving,

increasing the tertiary education attainment, and

reducing poverty.

The main findings of the analysis in this report and

the related policy challenges are as follows:

Despite the improvement in public finances,

some risks to long-term sustainability

remain. The fiscal position has benefited from

the strengthening of revenues. Corporate

income taxes have a higher weight in tax

revenues than in the rest of the EU, implying

higher vulnerability to economic shocks In

addition, in the medium to long-term horizon,

international initiatives in the fight against tax

avoidance could have an impact on tax

revenues and the fiscal position of the country.

On expenditure, sustainability challenges

remain due to the projected increase in age-

related budgetary costs, in particular in the

healthcare and pension systems.

The financial system continues to face some

structural challenges. The system is

characterised by a large number of foreign

institutions attracted to Malta also by a

favourable tax environment. The effective

supervision of internationally-oriented

business, however, creates some challenges. In

the banking sector, asset quality and the flow of

non-resident deposits may pose additional risks

for profitability and liquidity management.

Positive labour market developments

continue. Employment growth is high, helping

to reach the national Europe 2020 employment

target, and pushing down unemployment to a

record low level. Employment rates among

women are increasing steadily, albeit from a

low level. They remain low for older and low-

skilled women, who constitute a substantial

proportion of the labour force, but the

employment rate for young women has risen

above the EU average.

EXECUTIVE SUMMARY

Executive summary

2

Poverty and social exclusion risks are

declining but they remain substantial for

children, the elderly and the low-skilled.

Malta is addressing the social challenges and

strengthening policies for active inclusion.

Income inequalities are rather stable and below

the EU average thanks to low market

inequalities and the possible redistributive

impact of the tax and benefits system. The

latter has improved as a result of recent

reforms.

The skills supply does not yet adequately

match labour market needs. Access and

participation in lifelong learning have generally

improved, but labour market participation by

the low-skilled remains low. While educational

attainment is increasing, the rate of early

school leaving remains high and basic skills

attainment among young people is still weak.

In response to tightness in the labour market,

the reliance on foreign workers is increasing.

This points to labour shortages across a broad

spectrum of sectors and skills, possibly

hindering investment.

Sustainability of productivity growth calls

for a higher investment in both knowledge

and intangible assets. Major steps have been

taken to strengthen the research and innovation

system. Nevertheless, room for progress in

filling knowledge and skill gaps is significant.

In addition, infrastructure in general still faces

challenges.

Financing conditions have improved, but

access to appropriate financing instruments

is needed to promote new investment. The

authorities have made available a broad range

of mechanisms for alternative financing.

Financing innovations in services and new

business models require more diversified

financing instruments and venture capital in

particular. The Malta Development Bank is

being set up to address these needs as well as

long term investment projects.

Despite improvements, some inefficiencies in

public administration remain. The rolling out

of e-government facilities and the reform of the

planning authorisation process are expected to

enable investment. Nevertheless, significant

entry barriers for new firms remain. The

regulatory environment for bankruptcy and a

second chance for entrepreneurs in financial

difficulties is still underdeveloped. Despite

registering improvements in judicial system

efficiency, there remains substantial room for

improvement.

In view of natural resource constraints,

current policies do not appear sufficient to

achieve the goals related to green growth

and a circular economy. There are signs that

the existing physical infrastructure may be

insufficient to cope with the current pace of

development. Despite improvements, the

quality of road infrastructure remains a

concern, leading to heavy congestion. This

generates considerable costs to citizens'

welfare, operating costs for businesses and

environmental costs. The adoption of the

National Transport Strategy with a 2050

horizon and the Operational Transport Master

Plan 2025 is a welcome step to tackle the issues

in transport. Similarly, in energy, the policy

strategy has focused on securing supply and

removing the dependence on imported oil, but

the achievement of the national energy

efficiency target remains a challenge. The

promotion of renewable energy provides an

opportunity to exploit domestic energy sources.

Improving resource efficiency will be key for

sustainable growth given the very limited

available resources.

3

Economic growth and inflation

Malta experienced exceptional levels of

economic growth in 2014 and 2015. Real GDP

growth picked up in 2014-2015 reflecting also data

revisions in net exports, in particular from the

gaming sector (see also Box 1.1). The pace of

growth is among the highest in the EU, exceeding

significantly the pre-crisis period. The exceptional

economic performance was driven by growing

exports, supported by strong domestic demand.

Investment activity was particularly dynamic,

following a period of moderation that reflected the

changing structure of the economy (see also

Section 3.4). While its direct impact on GDP

growth is limited due to its high import content,

the increased capital stock also had a positive

impact on the future growth outlook.

Graph 1.1: External and domestic demand, contributions

to growth

Source: European Commission

Growth has settled down, remaining buoyant in

2016. GDP growth is estimated to have moderated

to 4.0 % in 2016 and to average 3.7 % in 2017-18.

Private consumption is forecast to be the main

driver of growth during the forecast horizon.

Positive spillovers from ongoing structural reform,

given adequate and timely implementation, on

consumer confidence and investment could impact

the medium-term outlook favourably. Given

Malta's high trade openness, shocks to global trade

could have a disproportionate impact on the

domestic economy.

Over the medium-term, average potential real

GDP growth is estimated to exceed pre-crisis

performance. After the peak registered in

2014-2015, potential growth is projected to

moderate, in line with real growth, and the output

gap is forecast to close in 2018. Nevertheless,

potential output growth is projected to average

4.0 % in 2017-2021, above the pre-crisis average

due to gains in total factor productivity and

substantial, albeit moderating, contributions from

capital accumulation. These factors are estimated

to more than offset a projected moderation in the

growth of labour market participation.

Graph 1.2: Contributions to potential growth

Source: European Commission

Price pressures are contained. Strong economic

performance, leading to opening of the output gap

after 2014, and low unemployment typically lead

to upward pressure on prices through increasing

aggregate demand. Indeed the Harmonised Index

of Consumer Prices (HICP) in Malta has been

higher than in neighbouring countries (see Graph

1.3). The inflation differential has been broad-

based, reflecting more dynamic price

developments in most categories. However,

inflation pressures appear to have been broadly

contained on the back of increasing productivity

and low international commodity prices.

-10

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16f

17f

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%, perc

enta

ge p

oin

ts

Inventories investment Investment (GFCF)

Consumption Net exports

Real GDP growth

-1

0

1

2

3

4

5

6

7

00

01

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%, perc

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Total Factor Productivity

Capital accumulation

Labour

Potential GDP growth

1. ECONOMIC SITUATION AND OUTLOOK

1. Economic situation and outlook

4

Graph 1.3: Overall HICP inflation

Source: European Commission

Labour Market

A number of positive labour market

developments continued throughout 2016. In a

context of sustained economic growth, the

employment rate (20-64 years old) rose strongly to

reach 69.8 % in Q3-2016, up by 1 pp. from Q3-

2015. The unemployment rate decreased further to

reach 4.6 % in Q4-2016, one of the lowest in the

EU (see Graph 1.4) and the lowest level observed

in Malta since accession to the EU. Strong

employment growth reflects the creation of jobs,

the take-up of economic opportunities by the

growing working age population (partially due to

migration inflows) and the rising labour force

participation (especially for women, albeit from

very low initial levels). However, the labour

market is becoming increasingly tight, with rising

incidence of both labour and skills shortages (see

Section 3.3).

Graph 1.4: Employment developments

Source: European Commission

Social situation

Income inequality remains stable and below the

EU average. The income of the richest 20 % of

households was 4.2 times higher than that of the

poorest 20 % in 2014, a ratio which is below the

EU average of 5.2 (1). This is mainly thanks to a

low level of market inequality — that is, inequality

before taxes and benefits are taken into account. In

2014, market inequality was the fourth lowest in

the EU. In recent years, the tax and benefits system

helped to contain the increase in market inequality.

In 2014, the disparity in gross hourly earnings

between the top and the bottom decile (2) was one

of the lowest in the EU-28. Nevertheless, in view

of the fast economic growth there is a risk of future

polarisation between high-skilled workers in well

paid jobs and low-skilled work-poor households

(see Section 3.3). At the same time, even if the

impact of social transfers on the reduction of

poverty was below the EU average in 2014, overall

the system shows high coverage and adequacy of

benefits and recent reforms are likely to further

improve it. Latest available figures indicate that

(1) As measured by the S80/S20 income quintile share ratio.

This is the ratio of total income received by the 20 % of

households with the highest income (top quintile) to that received by the 20 % of households with the lowest income

(lowest quintile). Income must be understood as

equivalised disposable income. (2) Measured by the D9/ D1 ratio, where D1 is the maximum

gross hourly earnings received by the 10 % of employees

earning least. D9 is the minimum gross hourly earnings received by the 10 % of employees earning most.

-1%

0%

1%

2%

3%

4%

5%

Jan

-11

Jun

-11

Nov-1

1

Ap

r-12

Se

p-1

2

Feb-1

3

Jul-1

3

Dec-1

3

May-1

4

Oct-

14

Ma

r-15

Au

g-1

5

Jan

-16

Jun

-16

Nov-1

6

MT South Europe MS, composite

0

10

20

30

40

50

60

70

80

0

2

4

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12

14

16

18

20

01

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04

05

06

07

08

09

10

11

12

13

14

15

%%MT

Activity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)Employment rate 20-64 (rhs)

1. Economic situation and outlook

5

net wealth inequality (3) was within the range

observed in other EU countries (ECB 2016).

Productivity and competitiveness

Recent data points to sharp improvement in

labour productivity. As a result of the revised

economic data, real labour productivity gains (4)

have been among the highest in the EU since 2013.

In the context of sustained job gains, this points to

a positive productivity shock. This followed a

period of muted productivity developments,

reflecting the fact that employment dynamics

tended to outpace economic growth (see Graph

1.5). Gains were registered across a range of

sectors, mainly driven by gaming (see also Box

1.1) and IT in 2014, followed by construction and

utilities in 2015.

Graph 1.5: Real labour productivity per person

Source: European Commission

The evolution of labour productivity has been

closely linked to the structural transformation

of the economy in recent years. The services

sector has grown faster in Malta than in any other

EU Member State between 2004 and 2014 (Central

Bank of Malta, 2016a). Apparent labour

productivity has grown thanks to sectors such as

the ‘Entertainment and recreational activities’ and

the ‘Financial services sector’. The ‘Professional,

scientific and technical activities; administrative

and support service activities’ have more than

(3) Difference between total assets and total liabilities.

(4) Data presented using figures of persons employed. Source:

European Commission

doubled their contribution to gross value added in

2003-2016.

As a result, competitiveness developments have

been favourable. As productivity outpaced wage

dynamics, the nominal unit labour costs declined

in 2014-15. The real effective exchange rate (5)

depreciated in 2015, pointing to improvements in

price competitiveness. The export market shares

increased owing to the growing services sector.

Nevertheless, goods exports continued to lose

market shares.

The recent rapid growth of the service sector

highlights the importance of reducing barriers

to competition within the sector. The recent

evaluation of restrictions in regulated professions

shows that restriction levels in Malta exceed the

EU average for four of the seven professions

considered. In particular, this concerns civil

engineers, architects, accountants and significantly

so for tourist guides who have a reserved activity

for “guiding and interpreting the cultural heritage

of Malta”. Barriers are slightly lower than average

for lawyers and there are no restrictions for patent

and real estate agents. (6)

Current account developments

The current account balance reached a position

of sizeable surplus. The external balance has been

on an upward trend since 2009, driven by the

improving balance in the trade of goods and

services (see Graph 1.6). The surplus diminished

somewhat in 2015 reflecting a surge in investment

(see also Section 3.4). As the investment cycle

normalises, the current account balance can be

expected to improve. Indeed, in the first three

quarters of 2016 the current account surplus

increased in annual terms. This was mainly driven

by the surplus in services, in particular transport

business services and gaming, and lower imports

of goods, due to moderating investment.

(5) Relative to the group of 37 industrialised countries;

deflated with unit labour costs. (6) The methodology applied is different to that used in the

October 2015 evaluation presented in the Commission

Staff Working Document accompanying the Single Market Strategy. This new methodology gives a more positive

assessment of the situation in Malta. In October 2015,

Malta was ranked third on the list of Member States with more severe restrictions in the four regulated professions

considered at that time: architects, civil engineers, lawyers

and accountants.

94

96

98

100

102

104

106

108

06 07 08 09 10 11 12 13 14 15

2010 =

100

MT EA EU-28

1. Economic situation and outlook

6

The improving external balance is due mainly

to structural factors. The increasing importance

of export-oriented and less capital-intensive

services contributes to a lower import intensity of

the economy, shifting the saving-investment

balance (Central Bank of Malta, 2016d). As a

result, most of the improvement in the external

balance since 2009 has been structural (see Graph

1.7). Implementation of energy and transport

reforms aimed at further lowering the energy

intensity of the economy could contribute to

further reducing the import-intensity of the

economy and freeing up resources for investment

(see also Section 3.5).

Graph 1.6: Current account developments

Source: European Commission

Graph 1.7: Underlying current account balance

Source: European Commission

Financial sector

Financial soundness indicators confirm the

stability of the banking sector was preserved.

The domestic banks increased their profitability

during 2016, relative to a year ago. Nevertheless,

return on equity came down substantially after the

crisis, mainly due to the compressed interest rate

margins. The domestic banking sector is well

capitalised with an aggregate capital ratio (CET1)

at around 13 % in September 2016 (see Table 1.1).

Table 1.1: Financial soundness indicators, core domestic

banks

Source: Central Bank of Malta

Banks have significantly reduced lending to the

corporate sector, but continue to offer credit to

households. Overall, lending growth is weak with

banks reducing their exposure to risky sectors, in

particular the construction sector. This partly

reflects recommendations by the supervisory

authority given still elevated non-performing loans

(NPLs) (see also Section 3.2). The total banks’

exposure towards the construction sector has

almost halved since 2010 and reduced to close to

-30

-20

-10

0

10

20

30

40

04 05 06 07 08 09 10 11 12 13 14 15

% o

f G

DP

Goods Services

Primary income Secondary income

Current account

-15

-10

-5

0

5

10

15

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18%

of G

DP

Current account

Cyclically adjusted current account

2010 2015 2016q2

Non-performing loans (% of

gross loans)7.0 7.1 6.4

Non-performing loans, net of

provisions, to capital37.8 37.9 31.7

Tier 1 capital ratio 11.4 12.0 12.7

Return on equity 19.8 15.2 19.5

1. Economic situation and outlook

7

10 % of their balance sheets. The exposure to

government entities, both the Maltese sovereign

and state-owned enterprises, has also diminished,

also due to supervisory pressure. Mortgage lending

is thus the main driver of lending growth and the

banks project further increase in 2017 (see Graph

1.8).

Economic growth and the modest lending flows

have contributed to resilience of private sector

balance sheets. Both household and, in particular,

corporate indebtedness declined, bringing the gross

private sector debt down to 132 % of GDP in

2015. This is well below its peak of nearly 170 %

of GDP in 2009. The net asset positions of both

sectors, thus, improved, increasing their resilience

to shocks. Nevertheless, the debt-to-equity ratio of

non-financial corporations remains among the

highest in the EU, indicating some vulnerability in

case of unexpected developments.

Graph 1.8: Trends in bank lending, % of GDP

Source: Central Bank of Malta

Fiscal developments

The fiscal balance has improved in the recent

years. After a decline in 2008-10, the primary

balance has seen an upward trend, reaching 1.2 %

of GDP in 2015 as rising primary revenue tended

to outpace increases in spending. Thanks to both

strengthened primary balances and GDP growth,

public debt ratio has trended downward reaching

60.8 % of GDP in 2015. Based on the 2016

Stability Programme, interest rate savings are

estimated to have contributed 0.4 % of GDP to the

overall structural effort over 2012-2015 (see Graph

1.9). The decline in interest expenditure was

generally offset by a decline in structural primary

effort. In other words, the interest windfalls have

been used to reduce the primary fiscal effort, rather

than to accelerate the fiscal adjustment. At the

same time, the maturity structure of government

debt was lengthened during this period.

Graph 1.9: Breakdown of improvement in structural

balance, % of GDP

Source: Stability programmes 2013-2016, European

Commission calculations

0%

10%

20%

30%

40%

50%

60%

70%

Nov-0

4

Jun

-05

Jan

-06

Au

g-0

6

Ma

r-07

Oct-

07

Ma

y-0

8

Dec-0

8

Jul-0

9

Fe

b-1

0

Se

p-1

0

Ap

r-1

1

Nov-1

1

Jun

-12

Jan

-13

Au

g-1

3

Ma

r-14

Oct-

14

Ma

y-1

5

Dec-1

5

Jul-1

6

To non-financial corporations

To households and non-profit institutions

To households for house purchase

0.0

0.5

1.0

1.5

2.0

2.5

SP2013 SP2014 SP2015 SP2016

Structural primary effort (2012-2015)

Decrease in interest expenditure (2012-2015)

1. Economic situation and outlook

8

Box 1.1: The gaming sector

Malta benefits from a first-mover advantage in the gaming sector. It was the first EU Member

State to regulate i-gaming (2004). This attracted investors from several Member States, in

particular from the UK, which helped local operators to develop skills and know-how in this

innovative activity that expanded rapidly to reach an estimated turnover of 13.3 billion euro in

2015 in the EU.

Malta has developed a significant comparative advantage in gaming, especially in electronic or

remote gaming. This advantage is based on the accumulated experience and expertise in this area

as well as on an attractive regulatory and tax environment. The regulatory model in this area is

relatively simple, effective and flexible. It has subsequently been replicated in other Member

States. It is based on four different types of licenses for operators of online casino games, games of

chance and games that use a random generator; the second licence type is for online sports and

other forms of betting operators; licence class three is for advertisers and promotion companies

The geographic concentration of these activities can create important spillovers. First, know-how

in this "greenfield" area was developing as the industry developed. Then, several IT companies

producing hardware and software were also established to provide technical infrastructure and

services. This created the right environment for further expansion of existing firms that attracted

other newcomers.

Table 1:

Gaming sector indicators 2014 2015 H12016

Number of companies in operation 289 276 257

Gross value added (EUR mn) 795.3 899.6 502.7

% of total GVA 10.8% 11.1% 12.0%

Employment (end of period, full-time equivalent) 3,724 4707 6150

of which, land-based 16.7% 17.0% 13.9%

Gaming tax revenue (EUR mn) 52.6 55.1 28.0

% of total taxes on production and imports 4.8% 4.6% 4.9%

Source: Malta Gaming Authority

1. Economic situation and outlook

9

Table 1.2: Key economic, financial and social indicators

(1) Sum of portoflio debt instruments, other investment and reserve assets

(2,3) domestic banking groups and stand-alone banks.

(4) domestic banking groups and stand alone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and

non-EU) controlled branches.

(*) Indicates BPM5 and/or ESA95

Source: European Commission, ECB

2004-2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Real GDP (y-o-y) 2.7 -2.5 3.5 1.4 2.7 4.6 8.4 7.4 4.0 3.7 3.7

Private consumption (y-o-y) 1.6 1.8 -0.2 3.2 -0.3 2.2 2.6 5.5 3.6 2.8 2.7

Public consumption (y-o-y) 3.3 -3.3 1.6 3.8 6.4 0.1 7.0 4.7 3.2 7.5 6.2

Gross fixed capital formation (y-o-y) 3.1 -11.8 26.4 -16.2 1.4 -1.7 8.8 49.8 -2.0 2.0 3.1

Exports of goods and services (y-o-y) 10.0 -0.4 6.9 1.8 7.2 1.0 5.1 4.3 1.5 3.7 3.9

Imports of goods and services (y-o-y) 10.2 0.3 7.6 -0.5 5.5 -0.2 1.5 7.7 0.5 3.6 3.7

Output gap 0.8 -2.2 -1.4 -2.3 -2.7 -1.8 2.0 3.3 1.9 0.7 -0.2

Potential growth (y-o-y) 2.5 1.9 2.8 2.3 3.1 3.7 4.4 6.1 5.4 5.0 4.7

Contribution to GDP growth:

Domestic demand (y-o-y) 2.2 -1.9 5.0 -0.9 1.3 1.0 4.3 12.4 1.9 3.2 3.2

Inventories (y-o-y) 0.7 0.6 -0.2 -1.2 -1.6 1.6 -1.6 -0.9 0.6 0.0 0.0

Net exports (y-o-y) -0.2 -1.1 -1.2 3.5 2.9 2.0 5.7 -4.0 1.5 0.5 0.5

Contribution to potential GDP growth:

Total Labour (hours) (y-o-y) 0.6 0.8 0.5 0.6 1.1 1.5 1.7 1.8 1.7 1.5 1.4

Capital accumulation (y-o-y) 1.4 0.7 1.3 0.6 0.6 0.5 0.7 2.3 1.9 1.8 1.7

Total factor productivity (y-o-y) 0.6 0.5 0.9 1.2 1.5 1.7 2.0 1.9 1.7 1.7 1.6

Current account balance (% of GDP), balance of payments -4.0 -6.6 -4.7 -0.2 1.7 2.8 6.7 5.2 . . .

Trade balance (% of GDP), balance of payments -1.2 -1.2 -0.6 2.8 5.2 7.1 7.6 7.9 . . .

Terms of trade of goods and services (y-o-y) 0.0 -0.1 1.1 -0.1 -0.3 0.4 0.9 0.0 0.1 -0.1 0.2

Capital account balance (% of GDP) 1.9 1.2 2.0 1.2 1.9 1.7 1.7 1.8 . . .

Net international investment position (% of GDP) 25.4 12.6 12.1 6.3 19.6 20.4 39.6 49.9 . . .

Net marketable external debt (% of GDP) (1) 70.1 70.5 202.4 199.1 248.6 209.5 194.0 199.9 . . .

Gross marketable external debt (% of GDP) (1) 507.2 717.9 679.0 709.6 703.0 668.7 680.2 548.2 . . .

Export performance vs. advanced countries (% change over 5 years) 23.4 58.1 49.1 28.4 25.6 8.1 -10.4 0.01 . . .

Export market share, goods and services (y-o-y) 2.6 17.1 -10.8 -4.1 -1.2 0.4 -1.6 -2.5 c . . .

Net FDI flows (% of GDP) -121.4 -88.1 -68.3 -128.2 -126.0 -92.7 -78.9 -94.9 . . .

Savings rate of households (net saving as percentage of net disposable income) . . . . . . . . . . .

Private credit flow, consolidated (% of GDP) 9.3 10.6 6.7 7.2 0.5 2.7 7.0 5.2 . . .

Private sector debt, consolidated (% of GDP) 140.1 167.6 162.0 159.4 154.6 147.3 140.9 132.1 . . .

of which household debt, consolidated (% of GDP) 48.3 59.9 59.0 59.9 60.3 59.1 57.6 55.5 . . .

of which non-financial corporate debt, consolidated (% of GDP) 91.8 107.7 103.0 99.5 94.3 88.2 83.3 76.6 . . .

Corporations, net lending (+) or net borrowing (-) (% of GDP) . . . . . . . . . . .

Corporations, gross operating surplus (% of GDP) 24.4 24.3 25.5 . . . . . . . .

Households, net lending (+) or net borrowing (-) (% of GDP) . . . . . . . . . . .

Deflated house price index (y-o-y) 12.3 -6.2 -1.1 -3.5 0.5 -1.6 2.4 3.8 . . .

Residential investment (% of GDP) 6.6 4.3 3.4 3.4 3.0 2.6 2.5 3.2 . . .

GDP deflator (y-o-y) 2.5 2.7 3.8 2.1 2.0 1.9 1.9 2.2 1.7 2.1 2.4

Harmonised index of consumer prices (HICP, y-o-y) 2.6 1.8 2.0 2.5 3.2 1.0 0.8 1.2 0.9 1.6 1.8

Nominal compensation per employee (y-o-y) 3.3 3.0 2.0 3.3 3.6 2.0 1.4 3.8 3.0 2.9 2.8

Labour productivity (real, person employed, y-o-y) 1.1 -2.5 1.8 -1.5 0.2 0.8 3.1 3.8 . . .

Unit labour costs (ULC, whole economy, y-o-y) 2.2 5.6 0.2 4.8 3.4 1.2 -1.6 0.0 2.0 2.0 1.7

Real unit labour costs (y-o-y) -0.3 2.8 -3.5 2.6 1.3 -0.7 -3.4 -2.1 0.3 -0.1 -0.6

Real effective exchange rate (ULC, y-o-y) 2.0 1.3 -3.1 4.2 -0.4 2.7 -1.9 -3.2 1.6 1.2 0.0

Real effective exchange rate (HICP, y-o-y) 1.6 0.8 -5.0 -0.8 -1.9 1.4 0.6 -2.2 1.6 -0.7 .

Tax rate for a single person earning the average wage (%) 17.7 16.5 16.9 18.1 19.2 19.8 19.1 19.2 . . .

Tax rate for a single person earning 50% of the average wage (%) 8.2* 7.7 8.4 9.4 9.8 10.2 9.8 10.0 . . .

Total Financial sector liabilities, non-consolidated (y-o-y) 41.5 3.8 12.9 11.0 5.8 1.9 6.4 0.7 . . .

Tier 1 ratio (%) (2) . 14.1 13.3 13.3 12.7 12.5 12.1 15.5 . . .

Return on equity (%) (3) . 11.7 12.1 5.8 14.1 9.8 4.6 9.3 . . .

Gross non-performing debt (% of total debt instruments and total loans and advances) (4) . 1.7 1.6 1.5 1.7 2.0 3.2 2.9 . . .

Unemployment rate 6.7 6.9 6.9 6.4 6.3 6.4 5.8 5.4 4.8 4.9 4.9

Long-term unemployment rate (% of active population) 3.0 2.9 3.1 3.0 3.1 2.9 2.7 2.4 . . .

Youth unemployment rate (% of active population in the same age group) 14.7 14.5 13.2 13.3 14.1 13.0 11.7 11.8 11.3 . .

Activity rate (15-64 year-olds) 58.2 59.4 60.4 61.8 63.1 65.0 66.3 67.6 . . .

People at risk of poverty or social exclusion (% total population) 20.0 20.3 21.2 22.1 23.1 24.0 23.8 22.4 . . .

Persons living in households with very low work intensity (% of total population aged below 60) 9.4 9.2 9.2 8.9 9.0 9.0 9.8 9.2 . . .

General government balance (% of GDP) -3.2 -3.3 -3.2 -2.6 -3.7 -2.6 -2.0 -1.3 -0.7 -0.6 -0.6

Tax-to-GDP ratio (%) 33.1 33.8 32.5 33.4 33.6 33.7 33.7 33.0 33.3 33.4 33.2

Structural budget balance (% of GDP) . . -3.8 -2.0 -2.8 -1.9 -3.4 -2.9 -1.4 -0.7 -0.5

General government gross debt (% of GDP) 66.4 67.8 67.6 70.4 68.0 68.7 64.3 60.8 59.6 58.0 55.6

forecast

10

Progress with the implementation of the

recommendations addressed to Malta in 2016(7)

has to be seen in a longer term perspective since

the introduction of the European Semester in

2011.

Substantial progress has been made in recent

years in diversifying the energy mix. The

electricity interconnector with Italy was

completed, providing a link with mainland Europe.

In addition, there have been notable investments in

upgrading the energy infrastructure and switching

electricity production from oil to natural gas.

Nevertheless, progress with improving energy

efficiency, strengthening energy production from

renewable sources and containing greenhouse gas

emissions is still limited.

There has been some progress with improving

the business environment. The authorities have

launched a comprehensive judicial reform with a

view to tackle the inefficiencies in the judicial

system. Various initiatives have been put in place,

including non-debt instruments, to improve access

to finance for SMEs. Substantial improvements

were achieved in the public procurement system.

Some progress was also achieved in improving

human capital development. Some progress has

been made in reducing early school leaving,

incentivising the professional development of

teachers. Policies to improve the work-life balance

and make work pay have helped to lower the

gender employment gap, although it remains

(7) For the assessment of other reforms implemented in the

past, see in particular section 3.

substantial.

Overall, Malta has made limited (8) progress in

addressing the 2016 country-specific

recommendations. There has been limited

progress in improving the sustainability of public

finances. The authorities have made some progress

in strengthening labour supply by improving

access and participation in lifelong learning, with a

focus on the low-skilled.

(8) Information on the level of progress and actions taken to

address the policy advice in each respective subpart of a

CSR is presented in the Overview Table in the Annex. This overall assessment does not include an assessment of

compliance with the Stability and Growth Pact.

2. PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS

Box 2.1: CSR implementation table

Overall assessment of progress with 2016

CSRs: Limited

CSR 1: In view of the high risk of a

significant deviation, achieve an annual

fiscal adjustment of 0.6 % of GDP

towards the medium-term budgetary

objective in 2016 and in 2017, by taking

the necessary structural measures.

Step up measures to ensure the long-term

sustainability of public finances.

Limited progress in ensuring the long-term

sustainability of public finances.

CSR 2: Take measures to strengthen

labour supply, in particular through

increased participation of low-skilled

persons in lifelong learning.

Some progress on increasing participation of

low-skilled persons in lifelong learning.

2. Progress with country-specific recommendations

11

Box 2.2: Contribution of the EU Budget to structural change

Malta is an important beneficiary of European Structural and Investment Funds (ESI Funds) with

an allocation of up to EUR 828 million till 2020. This is equivalent to around 1.3% of GDP

annually (over 2014-2017) and 28% of national public investment1. Out of the EU financing EUR

34 million is planned to be delivered via financial instruments, which is more than a three-fold

increase compared to the 2007-13 period. Malta also contributes EUR 15 million to the SME

initiative. By 31 December 2016, an estimated EUR 156 million, which represents about 19 % of

the total allocation for ESI Funds, have already been allocated to concrete projects.

Financing under the European Fund for Strategic Investments, Horizon 2020, the Connecting

Europe Facility and other directly managed EU funds is additional to the ESI Funds. By end 2016,

Malta has signed agreements for EUR 39 million for projects under the Connecting Europe

Facility. The EIB Group approved financing under EFSI amounts to EUR 6 million, which is

expected to trigger nearly EUR 17 million in total investments (as of end 2016)

ESI Funds helped progress on a number of structural reforms in 2015 and 2016 via ex-ante

conditionalities2 and targeted investment. Examples include the timely transposition of public

procurement and environment directives, as well as structural reforms in the areas of research,

development and innovation, transport infrastructure, education, employment and social inclusion.

For example, smart specialisation strategies spur and coordinate innovation investments between

public and private sectors, and transport plans provide a coherent framework to facilitate the

implementation of more sustainable and efficient mobility measures, alongside with the

development of mature transport infrastructure projects. These reforms prepared the ground for

better implementation of public inves tment projects in general, including those financed from

national sources and from other EU instruments. Fulfilment of ex-ante conditionalities is on track.

In addition to the above, administrative reforms support is available through targeted financing

under the European Social Fund, advice from the Structural Reform Support Service and,

indirectly, through technical assistance

The relevant CSRs focusing on structural issues were taken into account when designing the

2014-2020 programmes . These include addressing the labour-market relevance of education and

training, improving the labour-market participation, diversifying the energy mix by increasing the

share of energy produced from renewable sources and supporting more sustainable and efficient

mobility solutions in the transport sector.

In addition to challenges identified in the past CSRs, ESI Funds address other structural

obstacles to growth and competitiveness. ESI Funds support contributes to increase the

proportion of GDP invested in R&I from 0.72% to at least 2%, to preserve natural resources and to

meeting EU targets for reducing greenhouse gases and use of renewable energy (to 10% of total

energy consumption). ESI Funds support contributes also to increasing employment to 70 % of the

working age population, and to attain a tertiary education rate of 33 %, reducing early

school-leaving from 33.5 % to 10 %, and lifting around 6 560 people out of the at-risk-of-poverty-

or-social-exclusion category.

https://cohesiondata.ec.europa.eu/countries/MT

1 National public investment is defined as gross capital formation + investment grants + national expenditure on

agriculture and fisheries 2 At the adoption of programmes, Member States are required to comply with a number of ex -ante conditionalities. For

Members States that do not fulfil all the EACs by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments. The analysis of the fulfilment of the EACs will be finalised in the course of 2017.

12

3.1.1. RECENT BUDGETARY DEVELOPMENTS AND

MAIN DRIVERS

The fiscal position improved over the last

decade, following a strengthening of revenues,

supported by favourable macroeconomic

conditions. Public finances benefited from the

favourable macroeconomic conditions. However,

the latter’s contribution to the improvements in

public finances is expected to moderate in the

medium-term, thus making the balancing of

expenditure and revenue more challenging. Since

Malta’s accession to the EU, the average growth

rate of tax revenue is above the EU average, and

has been increasing in recent years. In particular,

since 2013, the average growth rate of tax revenue

in Malta reached twice the rate observed in the EU

(8.0 % against 3.4 %). In addition, non-tax revenue

recently increased substantially thanks to the

proceeds from the International Investor

Programme that was introduced in 2014. This

programme gathered revenues of around 0.7 % of

GDP in 2014-2015.

The reliance on corporate income taxes is

higher than the EU average. While the share of

taxes on production and imports is in line with the

EU average, the share of current taxes on income

is higher in Malta compared to the EU. Net social

contributions represent a lower portion of tax

revenues (see Graph 3.1.1) and the reliance on

corporate taxation is much higher in Malta (almost

triple) compared to the EU average. In terms of

GDP, earnings related to corporate taxation have

increased by 1 pp. in 2011-2014 (from 5.3 % to

6.3 % of GDP) while it remaining at 2.4 % of GDP

on average in the EU. Corporate taxation therefore

has stood out as a significant and growing source

of tax revenue for Malta in the last few years.

Risks to the resilience of tax revenues could come

from economic shocks or changes in the area of

corporate tax policy. The adopted corporate tax

initiatives (9) aim to reduce tax avoidance (see also

(9) Several initiatives at EU level were adopted to boost tax

transparency, with the automatic exchange of information

on tax rulings and the introduction of country-by country reporting. Further initiatives were taken to ensure that taxes

are paid where the value is generated, for example the

Section 3.1.2). However, in the medium to long-

term horizon, it is unclear how these initiatives

would impact on the fiscal position of the country.

Graph 3.1.1: Breakdown of tax revenue by detailed tax

categories in 2015, MT and EU28 (% of GDP)

Source: European Commission

Public outlays have been increasing at a fast

pace. Public expenditure in Malta stood at 41.2 %

of GDP in 2015. On average, public expenditure

increased by 5 % annually since Malta’s accession

to the EU, broadly in line with the average nominal

GDP growth rate. The pace of expenditure

accelerated recently, and total expenditure growth

reached 7.6 % (against 1.8 % in the EU) over the

last three years period, driven also by higher

outlays for public investment.

In recent years, Malta has largely achieved

fiscal consolidation without penalising public

investment. In the past, government investment

was used to compensate for slippages in budgetary

execution. As a result, public investment as a share

of GDP fell from 4.6 % in 2005 to 2.2 % in 2010.

Over the past two years, however, government

investment increased, reflecting also the necessity

to shield EU-funded projects from cuts, which

account for a large share of public investment.

These projects include the completion of

Anti-Tax Avoidance Directive (ATAD) adopted by the

Council in June 2016.

0

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MT EU-28

% o

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DP

Net social contributions

Capital taxes

Other current taxes

Taxes on the income or profits of corporations

Taxes on individual or household income

Taxes on production and imports

3. REFORM PRIORITIES

3.1. PUBLIC FINANCES AND TAXATION

3.1. Public finances and taxation

13

infrastructure works at the Mater Dei hospital’s

new wing, the completion of the Oncology

Hospital, road improvement and street lighting, the

restoration of historical places, the upgrading of

ports and the acquisitions of new fixed assets.

Consequently, capital spending exceeded the EU

average in the past five years, reaching 4.3% of

GDP in 2015, against 2.9 % in the EU. As a share

of total government expenditure, public investment

in Malta has exceeded the EU average, reaching

10.6 % in 2015, against 6.2 % in the EU (10

).

At the same time, the share of public

expenditure devoted to current expenditure also

increased. The average increase of current

expenditure since Malta’s accession to the EU was

higher (at 5.4 %) and even higher in the last three

years (at 6.1 %). Also, the relative share of

intermediate consumption and subsidies continued

to increase. Nevertheless, some reductions took

place in some categories, as the allocation of

public spending to social protection decreased

substantially (reflecting also the counter-cyclical

nature of such spending) together with the share of

public wages and interest expenditure. A

consideration of the functional classification of

expenditure, shows that social protection in Malta

is among the lowest in the EU, at 13.7 % of GDP

in 2014, and well below the EU average at 19.4 %

of GDP, due also to the low unemployment rate.

Wage bill reductions contributed to consolidation,

despite the fact that general government

employment levels are relatively high, exceeding

the EU average and increasing at a faster rate (see

Graph 3.1.2).

In terms of public expenditure by functional

category, education and health spending

increased the most. Public education spending in

Malta is high relative to that in the EU (5.6 % of

GDP, above the EU average of 5.0 % of GDP).

Spending on tertiary education is partly

responsible for this gap, somewhat at odds with

demographic trends. In particular, student-teacher

ratios have followed a decreasing trend and are

among the lowest in the EU at all education levels.

In addition, higher education spending has been

driven by a high wage bill. While the current level

of public health spending in Malta is below the EU

(10) The share of capital transfers was above the EU average in

2013-2015. This was due also to capital injections into the national airline.

average (at 5.7 % of GDP in 2014, against 7.2 % in

the EU), the composition appears skewed toward

wages, with the health wage bill at 3.3 % of GDP,

against an EU average of 1.9 % of GDP. This is

due to the high and increasing number of doctors,

nursing professionals and midwives working in

hospitals since 2010. In addition, capital spending

in the health sector in Malta is higher than the EU

average (0.6 % of GDP against 0.2 % of GDP in

the EU in 2014), and spending in intermediate

consumption is 0.2 pps. above the EU average.

Overall, spending for wages in both the education

and the health sectors has increased in Malta in the

last five years, while on average in the EU it has

remained overall stable or has slightly declined.

Graph 3.1.2: General government employment,

percentage of total employment

Source: European Commission

The Comprehensive Spending review is

ongoing. The review started in 2014 and has so far

covered the Department for Social Security, the

Mater Dei Hospital (in 2015), and the Ministry for

Education and Employment (in 2016). Each

review ended with the publication of a report

which included recommendations in the area of

social security and for the Mater Dei Hospital

(among others, budget decentralisation in some

departments and notional billing). Some of them

have already been implemented and others are

underway. The process of budget decentralisation

is expected to be launched for the entire Mater Dei

hospital during 2017 and a monitoring and

evaluation team is being set up and will be

launched during 2017. Overall, the spending

EU28

BE

BGCZ

DK

DE

EE

IE

ELES

FR

ITCY

LVLT

LU

HU

MTNL

AT

PL

PT

RO

SI

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SE

UK

10

15

20

25

30

35

10 15 20 25 30 35

2015

2009

3.1. Public finances and taxation

14

review is bringing results in terms of short-term

savings, even if of limited amounts at first, while

contributing towards increased effectiveness in

public spending.

3.1.2. TAXATION

VAT tax compliance is improving in Malta, but

some challenges remain. While the VAT gap (11

)

is relatively high in comparison with other EU

Member States, a strong revenue performance

helped to move it downwards in 2014. The gap

declined from 39 % of the total liability in 2013 to

35 % in 2014 due to a 10.3 % increase in VAT

revenues.

A number of relevant measures were taken to

improve tax compliance and address the

shadow economy. A new Joint Enforcement Task

Force to enhance tax compliance and to combat the

shadow economy was created to ensure further

cooperation between different tax administration

departments (Inland Revenue, VAT and Customs

Departments, with the participation of the Tax

Compliance Unit) and to facilitate information

sharing among them (12

). In the same vein,

property lease and renewal agreements will need to

be registered with the Inland Revenue (13

).

Some of Malta's tax rules may be used in

structures of aggressive tax planning (14

) (15

).

The absence of certain anti-abuse rules (16

) and the

absence of withholding taxes on dividends,

(11) The VAT gap represents the difference between the

amount of VAT actually collected and the amount that is theoretically collectable based on VAT legislation.

(12) Prioritising control and more frequent spot checks on

employers recruiting unregistered workers, owners of rented property not declaring their income and a close

monitoring of certain imported goods.

(13) Such income is already subject to a reduced income tax rate of 15°%.

(14) For an overview of the most common structures of

aggressive tax planning and the provisions (or lack thereof) necessary for these structures to work, see Ramboll

Management Consulting and Corit Advisory (2016), Study

on Structures of Aggressive Tax Planning and Indicators, European Commission Taxation Paper n°61. It should be

noted that country-specific information provided in the

study gives the state of play by May/June 2015. (15) Aggressive tax planning consists in taking advantage of the

technicalities of a tax system or of mismatches between

two or more tax systems for the purpose of reducing tax liability (see Commission Recommendation of 6 December

2012 on aggressive tax planning (2012/772/EU)).

(16) For more details, see European Commission, 2016a.

interests and royalties payments (European

Commission, 2016b), vis-à-vis third countries are

features of the tax system which may facilitate

aggressive tax planning. In that respect, the very

high level of inward and outward foreign direct

investments (FDI) positions, the share of those FDI

held by so-called 'Special Purpose Entities'

(SPE) (17

), but also the high level of dividends or

royalty payments (18

) as percentage of GDP

suggest that the country's tax rules are used by

companies that engage in aggressive tax planning.

Within this context however, it is important to note

that corporate tax initiatives (for example the

amendment to the Parent-Subsidiary Directive or

the Anti-Tax Avoidance Directive) will strengthen

Member States' anti-abuse framework and boost

tax transparency (for example through the

automatic exchange of information on tax rulings

or on country-by-country reports).

Malta has taken steps to adjust some of its tax

rules facilitating aggressive tax planning. In line

with Action 5 of the Base Erosion and Profit

Shifting project (see OECD, 2015) as endorsed by

the Code of Conduct for Business Taxation, Malta

took measures to close the existing patent box

regime.

(17) A special purpose entity is a legal entity that has little or no

employment, operations or physical presence in the tax jurisdiction where it is located. It is related to another

corporation often as a subsidiary, and is typically located in

another tax jurisdiction. (18) In 2015, the level of inward and outward FDI stock

amounted respectively to 1646°% and 665°% of GDP. The

share of inward and outward FDI stock held by SPE amounted respectively to 96°% and 98°% of GDP. The

flows of dividends paid (calculated as net income on FDI)

amounted to 90°% of GDP. The royalties paid and received in 2015 amounted respectively to 2.8°% of GDP and 4.2°%

of GDP.

3.1. Public finances and taxation

15

Graph 3.1.3: Charges for the use of intellectual property,

2015

Source: European Commission

3.1.3. FISCAL SUSTAINABILITY

Malta faces medium sustainability risks in the

long term. With government debt below the euro

area average and rapidly approaching the 60 % of

GDP threshold, over the short term, Malta does not

face significant fiscal risks. The same holds for the

medium term. However, Malta appears to be at

medium risk in the long term due to a relatively

high value of the required long-term fiscal

adjustment (4.4 pps. of GDP) needed to put its

debt on a sustainable path (European Commission,

2015a). The projections of implicit liabilities

related to the cost of ageing reflect the long-term

challenges in terms of an ageing population. The

steep increase in projected age-related expenditure

is related to pension expenditure (3.2 pps. of GDP)

but also healthcare and long-term care expenditure

(respectively 2.1 pps. and 1.2 pps.).

Graph 3.1.4: Components of total age-related expenditure

Source: European Commission, 2015 Ageing report

Pension system

The authorities have put forward several

measures to address challenges posed by the

pension system. Some measures were introduced

already with the 2016 Budget, targeted at

addressing sustainability and adequacy. These

measures followed the proposals of the Pension

Strategy Group and entered into force in March

2016. A full assessment of the budgetary impact is

still missing, but initial assessments show that

measures to achieve sustainability are not yet as

ambitious as to respond to the long term

challenges.

Pension adequacy indicators indicate

considerable room for improvement. The

relative median income ratio of people aged 65+ at

0.75 is 18 pps. lower than the EU-28 average at

0.93 (in 2015). The at risk of poverty rate of older

people at 21.0 % stands out both by being higher

than for the rest of the population (15.3 %) and 6.9

pps. above the EU average at 14.1 % (in 2015).

The percentage of women without pension

entitlements (the gender coverage gap) at 36.5 is

one of the highest in the EU, where the average is

at 6.8 (2014) (see Section 3.3).

The Government has responded with several

measures to improve pension adequacy,

including through addressing the gender gap.

According to national estimates, the measures

0

5

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15

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Pensions Health care

Long-term care Education

Unemployment benefits

3.1. Public finances and taxation

16

introduced in the 2017 Budget (19

) could lower the

poverty risk for people aged 62+ by 1.3 pps. It

could also improve the net replacement rate of the

guaranteed minimum pension by almost 15 pps.,

up to 93.8 %. (20

) In addition, in August 2016, the

Maltese government introduced financial

incentives to work longer in the private sector.

These financial incentives are expected to improve

pension adequacy by increasing replacement rates.

For each additional year that the retirement is

postponed beyond the current pensionable age the

pension will be raised by between 5 % and 6.5 %.

In addition, efforts to increase female labour

market participation (see Section 3.3) through

incentives for women, including revised child-

bearing credits, are likely to mitigate current

challenges.

Healthcare system

The recent reforms implemented in Malta are

contributing to an increasing effectiveness of

the healthcare system. Recent policy actions such

as the Health Act, the Mental Health Act, the

completion of the Health Systems Performance

Assessment exercise, the National Health Systems

Strategy, result in the strengthening of the national

health care system. This, however, has been

accompanied by an increase in total expenditure on

health as a percentage of GDP over the last decade

(from 8.1 % in 2003 to 9.8 % in 2014, according to

World Health Organization data), slightly below

the EU average of 10.0 % in 2014.

Private expenditure represents a relatively high

share of total health expenditure. In 2014,

private expenditure in Malta was 31 % of total

health expenditure, above the EU average of 23 %.

(19) A tax exemption on pension income of up to EUR 13 000

per annum (plus an additional EUR 500 in 2017 and EUR 1,000 in 2018 from other income) has been introduced for

married people with effect from 2017 while for single

persions the tax exemption on pension income. will be gradually introduced in the next two years. In the latter

case, the tax exemption will be on pension income up to

EUR 10,500 in 2017, while in 2018 it will be on pension income up to EUR13,000. . The rate of the minimum

contributory pension for married persons with a full

contributory period will be raised from EUR 141.83 to EUR 147.58 (up by 3.9%) %). per week including the cost

of living increase. A reform of the Supplementary

Allowance will also benefit mostly married pensioners with

income not exceeding EUR 13,000 per annum. .

(20) EU peer-reviewed effects on the sustainability and

adequacy of pensions are expected in early 2017.

A significant part of private expenditure is out-of-

pocket expenditure (31.5 % of total health

expenditure in 2013, higher than the EU average of

14.1 %), which has increased since 2003 (29 %)

(European Commission, 2016d).

Long-term care system

The Maltese long-term care system does not yet

meet the growing demand, although numerous

initiatives are being undertaken to cater for

such a demand. At the end of 2014, the number of

people in care homes financed by the government

(both public and private) reached 3 147,

complemented by private offer of 1 493 (European

Commission, 2016e). Despite this, long waiting

lists are reported (1 500 people at the end of 2015).

As a result, the government is incentivising

community-based and home care, which are

deemed cost saving in comparison to institutional

or hospital care. A pilot project to co-finance 50 %

of the professional carer salary was launched in

2016 and 100 people from the waiting list, who

employed a carer benefited from the scheme. As of

2017, according to the 2017 Budget speech, the

scheme will be extended and elderly people who

live at home and who are on the waiting list for

residential care will receive a Carer at Home

subsidy, with a maximum amount of 5 200 euros

per year.

17

Financial services are one of the cornerstones of

the Maltese economy. They accounted for 6.7 %

of the gross value added in 2015, higher than the

euro area average (4.9 %). The financial services

sector is also one of the main employers,

accounting for 5.2 % of total employment in 2015,

two times higher than in the euro area.

The financial system is characterised by a

significant number of foreign institutions also

attracted by the favourable tax environment.

Malta is relatively attractive as a domicile for

foreign financial companies for various reasons,

including: (i) it is the only EU Member State

utilising the full imputation system of company

taxation and it offers a refundable tax credit

scheme, (ii) it has an extensive network of double

taxation treaties, and (iii) it has an attractive tax

residency status for individuals.

The supervision of the internationally-oriented

business, however, is challenging. The financial

sector carries out most of its activities outside

Malta. The ability of a relatively small supervisory

authority to oversee a large system, in particular in

the insurance sector (21

) but also in banking is

under pressure. The Malta Financial Services

Authority, in consultation with the ECB, has

recently requested the withdrawal of the banking

license of a small internet banking provider that

collects deposits also outside Malta. Even if

potential weaknesses in internationally-oriented

institutions do not pose direct risks for domestic

financial stability, the reputation of the jurisdiction

could be put at risk.

Linkages point to a potential channel of

contagion risk, in case of distress. The life

insurance sector is dominated by two firms. One is

a subsidiary of a core domestic bank, while the

other is majority owned by another core domestic

bank. These insurance companies account for 97 %

of the assets of the life insurance sector and for

97 % of the total gross written premium by the

sector operating in Malta. Interconnectedness is

driven by ownership but also by operational

processes and systems (e.g. banc-assurance in the

life insurance sector). An additional contagion

channel is the fact that over 10 % of insurers’

(21) In the insurance industry, unlike in banking, the home

supervisor remains solely responsible for the supervision of companies doing business abroad.

assets consist of deposits held with the Maltese

banks. In addition, 19 % of total investment assets

of life insurance companies and 5% of the assets of

non-life providers is exposed to the Maltese

sovereign.

In the banking sector, risks to profitability

remain. At 6.4 % at Q2 of 2016, the ratio of bank

non-performing loans is close to the average of

other euro area countries. Nevertheless, it

constitutes a legacy burden for the core domestic

banks in view of the high associated costs of

managing them and of limitations imposed by the

small size of the economy. Whereas the banks

need to comply with the five-year targeting

programme with respect to bad assets, strict

supervisory actions and the proper legal

framework should assure their further reduction.

The largest stock of NPLs remains in the

construction sector, which is a legacy from the

crisis period. Protracted subdued credit

developments in a low interest-rate environment

put an additional strain on profitability.

Non-resident deposits could pose a structural

challenge for liquidity management. Non-

resident deposits coming from Libya have, in

recent years, increased in the domestic banks. In

some domestic banks they constituted a large share

of new inflows. Although the total reliance of such

deposits is still relatively low, it exposes the banks'

funding to volatility risk, especially in case of

intensified geopolitical tensions. Whereas the

minimum capital and liquidity requirements for

these banks are already higher than for others, the

situation warrants the continued attention of the

supervisor.

3.2. FINANCIAL SECTOR

18

3.3.1. LABOUR SUPPLY

Labour market participation continues to

improve. Malta is approaching its national Europe

2020 target employment rate of 70 %, largely

driven by increases in female labour market

participation and employment. This is a result of a

long-term structural trend (see Graph 3.3.1)

following changes in the societal structure and

progress in female educational attainment. The

latter have been reinforced by recent make-work-

pay policies focused on activation (including the

free child care scheme, tapering of benefits when

taking up a job, and in-work benefits, see Box

3.3.1). Impact estimates by the authorities show

that free childcare can be effective in facilitating a

more rapid return to the labour market for mothers

within the first three years of childbirth (see also

European Commission, 2015b and European

Commission, 2016a). Although the historically

strong impact of motherhood on female

employment is fading over time, stakeholders still

report labour market obstacles for women with

young children, resulting from a weak work-life

balance. (22

)

A pronounced gender gap in employment

persists, mostly driven by low-skilled and older

women. Notwithstanding significant improvement

in recent years, the gender employment gap (20-

64) is the largest in the EU and stood at 27.8 % in

2015 (23

). While employment of women with

medium to high skills attainment exceeds EU

averages, for the low-skilled employment remains

low (see Graph 3.3.2). Employment rates of older

and low-skilled women have improved notably in

recent years, but they remain considerably below

the EU average (see section on Labour and skills

shortages). These groups make up a substantial

share of the working age population (respectively

25 % and 17 % of age group 20-64) and could thus

strengthen labour supply. The share of low-skilled

single-earner households is high and these

households experience a higher risk of poverty

(see Section 3.3.3). In addition, low female

employment restricts women's access to pension

entitlements (see Section 3.1.3 and European

(22) Insufficient flexible working arrangements in the private

sector, parental leave design, incompatibility of working

hours with school opening, etc.

(23) Defined as a gap in employment rates between men and

women

Commission, 2016a) may constrain further

progress in lower the poverty risk.

Graph 3.3.1: Time trends in labour market participation

rates of women by age group

Source: European Commission

Graph 3.3.2: Female employment rates, 2015

Source: European Commission

3.3.2. LABOUR AND SKILLS SHORTAGES

There are increasing signs of tightening in the

labour market. In 2016, almost one fourth of all

companies in the industry sector report that the low

availability of labour is constraining their business.

This is one of the highest shares in the EU, and it

has increased significantly in recent years. At the

same time, the number of new job openings is high

0

10

20

30

40

50

60

70

80

90

15

-24

25

-29

30

-34

35

-39

40

-44

45

-49

50

-54

55

-64

2000 2005 2010 2015

0

10

20

30

40

50

60

70

80

90

100

25-30 30-34 35-39 40-44 45-49 50-54 55-59 60-64

EU28 low-skilled EU28 medium-skilled

EU28 high-skilled MT low-skilled

MT medium-skilled MT high-skilled

3.3. LABOUR MARKET, EDUCATION AND SOCIAL POLICIES

3.3. Labour market, education and social policies

19

(the vacancy rate was 3.1 % in the first quarter of

2016 the highest in the EU). (24

)

Graph 3.3.3: Labour shortages as reported by the industry,

services and construction sectors

* 2016 average includes data until Q3

Source: European Business Surveys

Qualitative evidence points to skills shortages in

many occupations. Particularly affected are high-

skilled jobs in sectors such as healthcare, finance,

and ICT. Shortages of skilled professionals reflect

also the still-low share of tertiary level graduates

(one of the lowest in the EU). In addition, unfilled

vacancies are reported in the hospitality, tourism

and social work sector. This might be partly due to

relatively unattractive working conditions,

including wages and working hours (see European

Commission, 2016a). The recent National

Employee Skills Survey (25

) stresses the main

difficulties in filling vacancies for clerical support

workers, professionals and service and sales

workers. Foreign companies also identify skills

shortages as obstacles to expansion (Ernst &

Young, 2016).

The government is taking measures to address

growing labour shortages. Efforts are being

undertaken to strengthen initial education,

including by reducing dropouts (see Section 3.3.4)

and on the upskilling and reskilling systems for

adults. This is expected to help the unemployed

find a job more easily, but also to support those

(24) See Eurostat variable jvs_q_nace2

(25) National Employee Skills Survey 2016, joint project of the National Commission for Further and Higher Education,

Malta Enterprice and Jobsplus

who are currently inactive and would like to

reintegrate into the labour market. The challenge

of (re)activating is exacerbated by the strong

gender, skills and age bias in the composition of

the unemployed population: 36 % of all the

unemployed in the age group 20-64 are women,

22 % are above 50 and 72 % have no upper

secondary school qualification.

Employers are increasingly relying on foreign

labour to address labour and skill shortages.

The share of foreign workers rose from 1.3 % in

2000 to 14.7 % in 2015. (26

) The share of EU

citizens in particular surged (see Graph 3.3.4).

While in the past most of the foreign labour force

was employed in high-skilled jobs, an increasing

share of foreigners are now taking up low-skilled

jobs, pMalta is registering an increase in the share

of foreign workers across all skill levels. An

increasing share of foreigners are now taking up

low-skilled jobs, pointing towards labour shortages

across abroad skills spectrum. In 2014, the share of

EU foreign workers in elementary jobs stood at

9 %, while the share of non-EU nationals in

elementary jobs stood at 33 % (27

). The

government took actions to support the labour

market inclusion of low-skilled non-EU nationals

through tackling irregular forms of employment

and precarious work conditions and facilitating the

validation of qualifications in childcare and

construction.

(26) Based on data from the Employment and Training

Corporation. In the regular Labour Force Survey of the same year however, the figures appear to be

underestimated.

(27) Elementary jobs comprise simple and routine tasks, requiring hand-held tools and some physical effort.

http://www.ilo.org/public/english/bureau/stat/isco/isco88/9.

htm

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2013 2016* 2013 2016* 2013 2016*

Industry Services Construction

EU28

MT

3.3. Labour market, education and social policies

20

Graph 3.3.4: Foreign employment, by occupational level

ILO classification of occupations: ISCO 1-3 high skilled; ISCO

4-8 medium-skilled; ISCO 9 low skilled.

TCN - Third country nationals

EEA – European Economic Area

EFTA – European Free Trade Association

Source: National data - Jobsplus

3.3.3. SOCIAL POLICY

The overall risk of poverty and social exclusion

decreased in 2015, but remains high for elderly,

children, the low-skilled and people with

disabilities. Monetary poverty for people over 65

years continued to increase in 2015 for both men

and women (see also Section 3.1.3). Child poverty,

despite an overall decline in 2015, has increased in

single-earner households (28

) while for children

with low-skilled parents, this has decreased.

Poverty and social exclusion risks of the low-

skilled, where there is a high concentration of

single-earner households, have also increased

steadily in recent years. The low-skilled are three

times more likely to face in-work poverty than the

medium-skilled. (29

) In addition, Malta has one of

the lowest employment rates of people with

disabilities in the EU, with only 28.2 % in 2014

(against EU average of 48.7 %). Although

educational attainment among people with

disabilities is increasing, the majority are low-

skilled.

(28) Households with medium work intensity (0.45<WI<=0.55)

(29) In-work poverty: 10.2 % for those with education attainment ISCED 0-2, 2.7 % for ISCED 3-4 and 0.6 % for

ISCED 5-8

Graph 3.3.5: At-risk-of-poverty-and-social-exclusion rate,

different groups

Source: European Commission

Social transfers remain important to reduce

poverty. The impact of social transfers was below

the EU average in 2015 but recent reforms are

likely to improve it. The adequacy of income

support for the working age population with the

lowest incomes and for minimum income earners

in particular remains above the EU average.

Nevertheless, given the rise in labour earnings at

the higher-end of the income spectrum, the relative

adequacy of minimum income (30

) and other out-

of-work benefits slightly declined in recent years.

Malta is placing emphasis on raising active

inclusion and addressing current social

challenges. Policy actions, extended under the

2017 Budget, include the making-work-pay

package (see European Commission, 2016a),

housing support, a new proposal for a

comprehensive national child policy, efforts to

upgrade skills levels of the population and recent

measures to improve pension adequacy (see

Section 3.1.3). Efforts to invest in child care are

bearing fruit, but uneven geographical coverage of

child care facilities and lack of outreach notably

for children from low socio-economic background

remains an issue. The progress in upgrading skills

levels will further contribute to improving social

outcomes, in particular by preventing the

intergenerational transmission of poverty.

(30) The adequacy of MI support measured relative to the

poverty line set at 60% of the national median equivalised

disposable income.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

EU,EEA,EFTA

TCN EU,EEA,EFTA

TCN EU,EEA,EFTA

TCN

00 07 14

Low-skilled Medium-skilled High-skilled

0

5

10

15

20

25

30

35

05 06 07 08 09 10 11 12 13 14 15

% o

f popula

tion

Children (<18y)Working age (18-64)Elderly (65+)Low-skilled (18-64)

3.3. Labour market, education and social policies

21

Moreover, the increasing availability of care

services and financial support to home care for the

elderly is expected to ease the family

responsibilities of women. In addition, a special

policy focus is directed to people with disabilities

(see European Commission, 2016a) to improve

their employment and social status.

3.3.4. EDUCATION AND SKILLS

Despite significant investment in the education

system, basic skills attainment among young

people remains weak. The performance of 15-

year olds in the OECD Programme for

International Student Assessment (PISA) 2015

tests remained below the EU average, despite an

improvement on 2009 levels. (31

) However, since

performance also worsened in most EU countries,

the gap with the EU average shrank in reading and

science. Socio-economic status is found to strongly

influence student performance (OECD, 2016;

European Commission, 2016a). Performance is

also clearly related to the type of school, with

‘independent’ (i.e. private) school students

performing the best. They are followed by Church

school pupils and then State school pupils. Another

2015 international survey on 13-14-year olds -

Trends in International Mathematics and Science

Study (TIMSS) - confirmed these findings

(Ministry for Education and Employment, 2016).

This may suggest a persistent fragmentation of the

education system and a lack of inclusiveness of

vulnerable children, in particular from poorer and

low-skilled families.

Drop-out rates from the education system

remain high. The early school leaving rate has

fallen significantly in recent years, from 27.2 % in

2008 to 19.8 % in 2015. However, this remains

one of the highest in the EU. The gender gap is

more than double the EU average. Moreover,

activation for early-school leavers remains a

challenge and translates into a high share of

inactive young people who are neither in

employment nor in education or training.

Subsequently, leading to high inactivity rates

among adults. Policy actions focus on

strengthening basic skills programmes and

(31) Compared to 2009, performance significantly improved in

maths while it remained broadly stable in reading and science.

extending opportunities for a ‘second-chance

education’. The ‘Alternative Learning Programme’

and other preventive and compensatory measures

aim at addressing early school leaving . The 2014

Early School Leaving Strategy is under revision

focusing on new vulnerable groups. Moreover, the

updated Youth Guarantee Scheme targets potential

school dropouts through a combined programme of

mentoring and traineeships. All of these policy

measures are welcome.

Despite significant progress, the qualification

level of adults remains low. The share of low-

qualified adults is the highest in the EU - 56.5 % in

2015 (25-64). Only about 20 % of adults have

tertiary education attainment and 22.7 % are

medium skilled. In addition, the share of low-

qualified youth (25-34) is among the highest in the

EU (37.1 % vs. 16.6 %), which is driven by the

high rate of early school leavers. In comparison to

the native population, the foreign-born population

has on average a higher level of skills. In 2015,

45.7 % of foreigners living in Malta were low-

skilled (ISCED 0-2) and 31.3 % had tertiary

education (ISCED levels 5-8), compared with

57.4 % and 18.5 % of the native population,

respectively. As a result, they are able to take up

higher-skilled jobs, thus filling skill shortages.

Graph 3.3.6: Population distribution by educational

attainment and country of birth

Source: European Commission

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EU-28 Extra-EU-28 MT

low-skilled medium-skilled high-skilled

3.3. Labour market, education and social policies

22

Box 3.3.1: Selected highlights making-work-pay measures

The package of making work pay measures has been implemented since 2014. It is targeting

mainly women to address the challenge of low participation, which was a subject of country-

specific recommendations in 2012, 2013 and 2014. In these years, Malta registered one of the

lowest employment rates of women and the highest gender employment gap in the EU. The make-

work-pay policies focus on facilitating (re)entry into the labour market, and reinforcing changes in

the societal structure and progress in women's educational attainment.

The free childcare scheme: Introduced in April 2014 the scheme aims to exploit the full potential

of each household member whilst finding an adequate work-life balance. Free childcare services

for children aged 0-3 years old are delivered for families where both parents are in employment, in

education or actively seeking a job. Free childcare is also provided to single-parent households

given that the same conditions (employment, education) are met. In addition, tax deductions for

parents choosing to send their children to private childcare were introduced.

A gradual tapering of benefits for those entering into employment: retaining 65% of a benefit

in the first year of employment and 45% and 25% in the following years, aiming at limiting

dependency on social benefits and providing more security while (re)entering the labour market.

In-work benefits: introduced in 2015 to address inactivity traps and to improve the situation of

low-income households, targeting low-to-medium income families where both spouses (or single

parents) are in employment and have dependent children up to 23 years of age. The scheme was

further extended, under the 2016 Budget, to one-earner households, however with a much smaller

yearly benefit. The in-work benefit is calculated on net income and does not result in a reduction

of any other benefit that a family is entitled to, such as Children’s Allowance.

The success of the package can be attributed to both, the effective targeting and the

comprehensiveness of the package which consists of several interconnected policy measures. The

total budgetary cost of the package is rather limited, amounting to around 0.06% of GDP in 2014

and 2015 each. According to national estimations, the three reforms have encouraged 2,032

persons to engage in employment by the end of 2015, relative to 2013, leading to: (i) a 0.07 pps.

increase in the employment rate; (ii) a 0.40 pps. decline in the unemployment rate; and (iii) a

0.63% increase in real GDP

Table 1:

Labour market indicators

Malta EU Malta EU

Employment rate (20-64 years old)

1. Female 49.8 62.6 53.6 64.3

2. Male 79.4 74.3 81.4 75.9

3. Gender employment gap (2-1) 29.6 11.7 27.8 11.6

4. Unemployment rate 6.4 10.9 5.4 9.4

Source: European Commission

2013 2015

3.3. Labour market, education and social policies

23

The provision of skills does not adequately

match those demanded by the labour market.

The economy is registering a high growth in ICT

services, but the share of graduates in Science,

Technology and Mathematics is still lower than the

EU average — 1.5 % compared to 1.8 %. While

ICT specialists represent a relatively high and

increasing share of the workforce (4.6 % compared

to 3.7 % in the EU), only 52 % of the population

had at least basic digital skills (EU average 55 %)

in 2015. In addition to the gap in professional and

technical skills, employers stress the weakness in

soft/transversal skills, such as communication,

English language, team work, problem-solving,

customer handling, etc. (National Employee Skills

Survey, 2016).

Although the government is enabling access to

lifelong learning and second-chance education

programmes, participation remains low.

Overall, the low participation rate in further

education and training is mainly driven by the very

low attendance of the low-skilled. Older cohorts

are also characterised by lower participation in

comparison to younger ones (European

Commission, 2016a). At all ages, the participation

of women is slightly higher than that of men.

Education and lifelong learning systems are

strengthened through the implementation of the

Lifelong Learning Strategy. Efforts to improve the

Vocational Education and Training system are

complemented by strengthening work-based

learning and partnership with employers.

Vocational subjects introduced in the national

curriculum of secondary schools are now accepted

to fulfil the criteria to start a post-secondary

course. (32

) The offer and the quality of

apprenticeships and traineeships are

improving. (33

) Moreover, a harmonised legal

framework ‘Workbased Learning and the

Apprenticeship Act’ is being finalised, and it will

provide a framework for Work-Placements

Apprenticeships. In addition, JobsPlus offers

trainings for upgrading job-related skills for both

the unemployed and employees.

Malta makes particular efforts in building a

national framework for the validation of non-

(32) Agribusiness, engineering/technology, health/social care,

hospitality and ITC (33) MCAST developed partnerships with almost 900

companies to organise work-based programmes and almost

500 of them are currently engaged in sponsorships.

formal and informal learning and a skills

forecasting and anticipation system. In addition

to significant institutional changes, there have been

major legislative developments related to

validation of informal and non-formal learning,

such as the set-up of a Sector Skills Council and

Sector Skills Units. Moreover, skills profiling is

introduced as one of the assessment steps for

unemployed people at the JobsPlus. The skills

forecasting and anticipation system has not yet

been consolidated, but Malta is currently working

with the European Centre for the Development of

Vocational Training - Cedefop on developing a

suitable skills forecasting model, including through

a comprehensive skills anticipation review. In the

meantime, a number of surveys were conducted by

different institutions to form the basis of any future

framework. In 2016 the National Commission for

Further and Higher Education, in collaboration

with JobsPlus and Malta Enterprise, conducted an

employee skills survey looking at the current and

future supply and demand for workers in different

sectors (see Section 3.3.2). In addition, the

National Skills Council was set up in December

2016.

24

3.4.1. INVESTMENT OVERVIEW

Investment was the main contributor to

economic growth in 2015. Following a period of

moderating shares of investment relative to GDP,

there has been a spectacular increase in 2104-2015.

In particular, gross fixed capital formation (GFCF)

surged by a record-high 52 % year-on-year in

2015. While investment in the EU has not

recovered pre-crisis levels, GFCF in Malta is

currently well above its 2007 peak. Taking into

account the structure of the domestic economy,

investment has generally been more dynamic than

in other EU economies with similar specialisation

into business and recreational services (see Graph

3.4.1). Available data for 2016 already points to a

slowdown as the peak has passed and investment is

starting to decrease.

Graph 3.4.1: Investment dynamics in selected Member

States

EU-5: Ireland, Cyprus, Luxembourg, Netherlands, UK

Source: European Commission

The recent investment surge reflected both one-

off and structural sector-specific factors. Public

investment surged reflecting the conclusion of

projects financed under the 2007-2013 EU Budget

framework. A number of large projects in the

energy sector boosted investment in 2014-2015

(See European Commission, 2016a). With the

latter nearing completion, their temporary boost to

investment should dissipate. The new, more

efficient capital stock put in place, however,

should contribute to more vigorous economic

activity, provided that the efficiency gains trickle

down to the rest of the economy. Meanwhile, 2015

also saw the introduction of very capital-intensive

activity in the transport sector. (34

) While the latter

leads to a higher investment ratio, the phenomenon

is rather specific to this particular sector. The

capital intensity (35

) of the rest of the economy has

remained broadly unchanged.

Recent years have brought about a

rearrangement of the components of

investment. Residential construction investment

has shrunk considerably since its peak in 2007.

Despite a modest improvement in 2015, it has

become among the least dynamic components of

investment. It was gradually replaced by non-

residential construction and metal products and

machinery, notwithstanding the temporary spike in

the latter (see above). Investment in transport

equipment also appears to have become a major

component, reflecting recent developments (see

above). While improving, other investment

remains relatively low, reflecting still limited R&D

expenditure (see section on Research and

Development).

Graph 3.4.2: Main components of investment in Malta

Source: European Commission

Infrastructure across Malta still poses

considerable challenges. The situation varies

considerably across areas. Malta ranks 25th

of the

world in the 2016-2017 Global Competitiveness

report in port infrastructures and 26th

in air

(34) A large aircraft leasing company relocated to Malta in

2015. (35) The ratio of gross fixed capital investment to gross value

added.

15

17

19

21

23

25

27

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16f

17f

18f

% o

f G

DP

MT EU-50

1

2

3

4

5

6

7

8

9

10

04 05 06 07 08 09 10 11 12 13 14 15

% o

f G

DP

Residential constructionNon-residential constructionMetal products and machineryTransport equipmentOther

3.4. INVESTMENT

3.4. Investment

25

transport infrastructures but only 100th

in road

transport infrastructures. Investment in

infrastructures has increased considerably,

especially road infrastructures with important

singular investment projects such as the Kappara

Junction project started in 2016. Despite some

fluctuations, the number of projects increased by

139.8 % between 2008 and 2014. Labour and skill

shortages are particularly important for this

segment, given that it employs the majority of

workers in the construction sector (89 % in 2013,

European Commission, 2016i).

3.4.2. CONSTRUCTION AND HOUSING MARKET

The housing market faces a range of supply

constraints. Construction is naturally limited by

the availability of development zones on the

islands. (36

) Real estate development should also

be seen in a broader policy context, taking into

account also environmental and transport aspects

(see section Sectoral Policies). Apart from this

structural constraint, external financing is limited

due to tighter lending standards by banks. Skills

and labour shortages in the construction sector are

emerging as a major problem despite the increase

in engineering and architecture students in recent

years, reflecting also growing labour market

tightness. Time and costs of obtaining building

permits and licenses pose additional barriers to

construction.

At the same time, the demand for housing

remains strong. Population growth has picked up

since 2012, reflecting strong net immigration. The

steady upward trend of mortgage loans points to a

sustained demand for housing. The share of buy-

to-let purchases is also on the rise. Housing

demand has also been encouraged by fiscal policy,

such as incentives for first-time buyers, schemes to

attract high net-worth individuals as well as the

citizenship programme.

Notwithstanding the constraints, recent trends

point to a rebound in supply. Despite the

burdensome procedures, building permits have

been on a rapid recovery path since 2014. In

(36) In addition, there is a significant number of vacant

properties. Not all of them, however, can be considered to be on the market. The authorities are introducing fiscal

incentives for the restoration of dwellings in urban

conservation areas.

particular, the average of issued permits over 2016

has recovered to its 2009 levels. The volume of

property transactions was also very dynamic in

2014 and 2015. The results of the survey of factors

limiting construction also reflect these

developments. The share of companies that did not

indicate any constraining factors has increased

notably since 2014.

Graph 3.4.3: Construction sector indicators

Source: European Commission, Central Bank of Malta,

National Statistical Office

The housing market is currently close to

balance currently, but the ongoing trends may

lead to upward pressure on prices. Current

estimates show that the excessive price growth

prior to 2008 has corrected and there does not

appear to be overvaluation of house prices (see

Graph 3.4.4 and Central Bank of Malta, 2016e).

This also reflects the strong income growth in

recent years. The current policy stance is assessed

as appropriate (ESRB, 2016). Nevertheless, while

housing demand appears to be growing at a steady

pace, income growth is projected to slow down.

The main risks are faced by households, in view of

their increasing ratio of debt to income and a high

debt service ratio, and by banks, in case of a

sudden drop in the value of their collateral.

0

50

100

150

200

250

300

06q1

06q3

07q1

07q3

08q1

08q3

09q1

09q3

10q1

10q3

11q1

11q3

12q1

12q3

13q1

13q3

14q1

14q3

15q1

15q3

16q1

16q3

Loans for construction + RE activities

Loans for housing purchase

Building permimts, useful area

Property transactions

3.4. Investment

26

Graph 3.4.4: Housing price overvaluation gap with respect

to main supply and demand fundamentals

A Vector Error Correction Model has been estimated for a

panel of 21 EU countries, using a system of five fundamental

variables; the relative house price, total population, real

housing investment, real disposable income per capita and

real long-term interest rate. A country-specific estimation on

top of the panel estimates is conducted whenever the time

series allow for a sound econometric analysis, leading to a

valuation gap calculated as a simple average of the

individual and the panel estimate.

Source: European Commission

3.4.3. RESEARCH AND DEVELOPMENT

Important steps have been taken to strengthen

the research and innovation (R&I) system. R&I

performance has improved, leading to a narrowing

of the innovation gap with the EU average, as

measured by the European Innovation Scoreboard

(EIS) (37

). R&D investment, in particular by the

public sector, has grown considerably in recent

years leading to higher-quality scientific

output. (38

) This notwithstanding, R&D

investment, both public and private, remains low,

the quality of scientific and technological output,

and the availability of researchers underperform

the EU average. Finally, some other challenges

remain, in particular in areas where progress until

now has been limited like in science-business

linkages (see figure 3) or the share of enterprises

(37) http://ec.europa.eu/DocsRoom/documents/17848. Malta is

classified into the "moderate innovator" group.

(38) Scientific quality is measured as a percentage of total

scientific publications of the country within the 10% most

cited scientific publications worldwide. It increased from

4.2 % in 2000 to 7.9 % in 2013.

collaborating with a university or public research

centre.

Graph 3.4.5: Number of public-private co-publications per

million population

Source: European Commission

The structural changes that the Maltese

economy is undergoing require more

investment in knowledge and intangible assets

to sustain productivity growth in the future.

However, Malta has one of the lowest levels of

Business Expenditure in R&D in the EU, at just

0.5 % of GDP in 2014. In addition, venture capital

markets are underdeveloped and the ease of doing

business in Malta, as measured by the World Bank,

is one of the lowest in the EU. The key policies in

this respect are the Smart Specialisation Strategy

and the alignment of the National R&I Strategy,

which are in the process of implementation. This

includes the mobilisation of additional financing

for research towards the seven key areas identified

under the Smart Specialisation Strategy. Timely

and efficient implementation would contribute to

building the R&I eco-system in Malta.

3.4.4. ACCESS TO FINANCE

Favourable economic conditions contribute to

favourable financing conditions. According to

the Survey of Access to Finance of Enterprises

(SAFE), a quarter of the polled firms recognise

that the availability of external financing has

improved owing to improving macroeconomic

conditions. This ratio is about a third higher than

-30

-20

-10

0

10

20

30

40

00

03

06

09

12

15

0

50

100

150

200

250

US

KR JP

EU

CN

DK

SE

NL FI

BE SI

AT

DE

UK

LU

FR IE

HU IT ES

CZ

HR

EL

SK

PT

CY

EE

PL

RO

MT

BG LT

LV

CH IS

NO IL

TR

2014 2009

3.4. Investment

27

the average for the EU. The financing structure of

businesses remains based mainly on bank credit

and 72 % of firms indicate preference for bank

financing if external funding is needed. The

positive financing conditions make firms highly

confident that they will get bank credit: 84 % of

Maltese businesses are confident that their banks

would provide the financing they need if they

approached them. This compares very positively

with the EU average 67 %.

Nevertheless, the authorities have identified

market failures in bank lending that obstruct

firms' access to financing. Estimates by the

Central Bank of Malta point to a credit gap (39

) of

15 %-18 % of the credit stock in Q3 2014 (Central

Bank of Malta, 2016c). The credit gap has been

projected to continue growing - a view that is

corroborated by the subdued lending developments

in 2015-2016. This reflects market failures

stemming out of high concentration in the banking

sector and asymmetric information available to

market participants (Central Bank of Malta, 2015).

The apparent under-provisioning of credit,

however, reflects also interplay of demand and

supply factors. Despite the relatively stable

financial stability indicators, lending standards are

tight on account of stricter regulatory and

collateral requirements as well as tough risk

assessment. High corporate indebtedness generally

reduces firms' credit worthiness and companies are

showing increasing reliance on internally-

generated funds.

The Malta Development Bank is being set up to

address these failures. This new, fully state-

owned credit institution is expected to have an

authorised capital of 100 million euro within five

years that could go up to 200 million (of which 30

million euro will be the initial paid up capital).

Credit activity is to target SMEs, who are usually

most affected by the market failures. In addition,

25 % of the value of operations will be invested in

infrastructure projects either co-financed with

private investors or under Market Equivalent

Operator conditions. The new bank could increase

the supply of public financial support by 800

million to one billion euro in the form of loans,

equity support or guarantees. At this stage, there is

little public information available on how exactly

(39) The difference between the actual loans to non-financial

corporations and the predicted level.

the Development Bank will ensure the efficient

transfer of the funds to the potential recipient

businesses, while also avoiding crowding out

private initiatives. It is also crucial that efficient

and arms-length risk management is ensured to

avoid piling up bad assets on the government's

balance sheet.

The authorities have also made a diversified

range of alternative mechanisms of financing

available. They aim to foster investment (soft

loans, rent and interest rate subsidies, loan

guarantees), SMEs and SME growth, the

upgrading of the qualifications of personnel, R&D

and start-up firms (Business Start and Start-up

Finance). In addition, Malta has signed three

financial instruments worth EUR 32 million with

the European Investment Bank (40

) during 2016.

These horizontal measures may be complemented

by new sectoral measures that have been

announced in the 2017 budget aiming at specific

activities such as hospitality services. However,

this year's SAFE survey shows a sharp increase in

the importance attached by business to the

administrative difficulties found when trying to

have access to public support measures for

financing (over two and half times higher

compared to 2015).

(40) Innovfin Large: 20 millions euros loans guaranteed; SME

Initiative supports Banif Bank to provide around €6 million of new loans to SMEs in Malta, over the next two

years; and SME Guarantee: 6 million euros of guarantee on

loans for innovative SMEs in Malta approved through APS Bank.

3.4. Investment

28

Box 3.4.1: Investment Box - Malta

Section 1. Macroeconomic perspective

Investment has been strong, following period of stagnation. The economy entered into a strong investment

cycle in 2014 on the back of both the private sector and the government. Although the business sector

remains the main driver of investment, public sector capital spending has contributed to the increase in

investment in the last two years reflecting the finalisation of projects funded by the 2007-2013 EU financial

framework. For more information on the investment trends, refer to Section 3.4.

Section 2. Assessment of barriers to investment and ongoing reforms

Barriers to private investment in Malta are reflected in the European Commission's assessment of investment

environments (1). Some reforms have been adopted or are in the pipeline, in particular in the areas of the

judicial system and skills mismatches, but some barriers remain to be addressed.

Main barriers to investment and priority actions underway

Regulatory and administrative burden hampers the business investment. Simplified procedures have

been introduced with a view to tackle the administrative hurdles in the creation and registration of firms,

getting electricity and obtaining construction licenses. As regards the judicial system, new measures on

second chance and insolvency have been proposed by the government. (see Section 3.6).

Skill shortages across a wide spectrum of sectors weigh on investment. There are increasing signals of

tightness in the labour market, constraining firms' expansion plans and growth prospects. Increasing

reliance on foreign labour to some extent helps to ease the impact of this challenge (see Section 3.3).

The insufficient capacity to innovate continues to hamper private investment. The R&D and innovation

environment is among the least attractive aspects for foreign investment of Malta's business

environment. R&D investment, both public and private, remains low. The quality of scientific and

technological output, and the availability of researchers underperform the EU average. Key challenges to

be tackled include a weak human resources base in science and technologies and the lack of critical mass

in specific research areas. The key policies in this respect are the Smart Specialisation Strategy and the

alignment of the National R&I Strategy, which are in the process of implementation (see Section 3.4).

(1) See ‘Challenges to Member States’ Investment Environments’, SWD (2015) http://ec.europa.eu/europe2020/challenges-to-member-states-investment-environments/index_en.htm and 2016 Country

report for Malta.

Table 1:

Regulatory/ administrative burden Taxation

Public administration Access to finance

Public procurement /PPPs Cooperation btw academia, research and business

Judicial system Financing of R&D&I

Insolvency framework Business services / Regulated professions

Competition and regulatory framework Retail

EPL & framework for labour contracts Construction

Wages & wage setting Digital Economy / Telecom

Education CSR Energy

Legend: Transport

No barrier to investment identified

CSR Investment barriers that are also subject to a CSR Some progress

No progress Substantial progress

Limited progress Fully addressed

Public

administration/

Business

environment

Financial Sector /

Taxation

R&D&I

Sector specific

regulationLabour market/

Education

29

There are signs that the current physical

infrastructure may be insufficient to cope with

the current pace of development. Despite

ongoing improvements, the overall quality of the

existing road network remains of insufficient

quality. (41

) The rapid increase in the use of cars

over the years has brought about a steep rise in

traffic congestion. Success in maritime trade has

reflected an efficient service provision. However,

as the current trade offering and spare capacity

approach their limits, bottlenecks at the ports may

jeopardise future economic growth. Anecdotal

evidence suggests that planned large-scale urban

development in densely-populated regions is

expected to put a further strain on the already

overworked utilities, including the sewer system.

A comprehensive approach towards achieving

green growth has particular benefits. The

islands face geographical isolation and very

limited availability of natural resources and land in

a context of an increasing population (42

) and

growing economic activity. The structure of the

economy to some extent takes account of these

factors (European Commission, 2016a).

Established patterns of growth, infrastructure and

consumption, however, may create path

dependencies that accentuate the risks for the

environment. The absence of a comprehensive,

long-term approach could intensify the resource

bottlenecks and the impact of climate change,

therefore also hindering growth prospects. The

potential benefits of the transition towards a

circular economy were highlighted also in the

2017 Annual Growth Survey.

3.5.1. CLIMATE

Meeting the national 2020 target for climate

remains a challenge. Malta is the only EU

Member State that has missed its target for

reducing greenhouse gas emissions outside the

Emissions Trading System for 2013, 2014 and

2015. (43

)(44

) This is due to a dramatic increase in

(41) Malta ranks 91st for quality of road infrastructure in the

2015-2016 WEF Global competitiveness report (42) Malta is by far the most densely populated island in the

EU.

(43) Figures for 2015 are still only estimates.

(44) According to the 2016 Eurostat Energy, Transport and

Environment Indicators yearbook, Malta is the EU Member

State with the highest increase in greenhouse gases

emissions from hydrofluorocarbons and a marked

increase of greenhouse gas emissions from the

transport sector in the context of economic and

population growth. Developments in transport

have had a particularly significant impact, since it

represents half of the total emissions covered

under the Effort Sharing Decision (406/2009/EC),

while also showing one of the most dynamic

increases in emissions. In this context, Malta may

have to update its projections for 2020 based on

recent emissions data.

3.5.2. ENERGY

The policy strategy has focused on tackling

security of supply and dependence on imported

oil. The fuel import dependency ratio is 97.3 % in

2015, translating into one of the largest energy

trade deficits in the EU (9.3 % of GDP). The

national authorities’ strategy has focused on

diversifying the sources of energy and upgrading

the energy infrastructure to improve security,

lower costs, and reduce carbon and non-carbon

emissions. While not fully implemented yet, these

measures have already resulted in lower electricity

tariffs for households and businesses. In addition,

the state power utility, Enemalta turned profit in

2016, thus improving its debt-repayment

capacity. (45

)

Achieving the national energy efficiency target

remains a challenge. The measures that would

have the highest impact on lowering generation

costs have already been taken. From this point on,

improving energy efficiency will have the highest

potential to further reduce energy costs and raise

competitiveness and disposable income. The

national energy efficiency target for 2020 has been

relaxed so as to account for the high economic

growth. Malta reduced its primary energy

consumption by 15% from 2014 to 2015. Final

energy consumption increased by 5% from 2014 to

2015, partly as a result of buoyant economic

activity, making the achievement of the indicative

national 2020 energy efficiency targets more

challenging.

emissions since 1990, while the EU as a whole has reduced emissions by over 22 %.

(45) Enemalta's debt is the largest contingent liability of the

government.

3.5. SECTORAL POLICIES

3.5. Sectoral policies

30

The promotion of renewable energy provides an

opportunity to exploit domestic energy sources.

The national authorities have put emphasis on the

promotion of solar energy. Furthermore, heat

pumps are used to cover heat demand in winter

and biodiesel is used in transport. Starting from a

very low level, Malta succeeded in increasing its

renewable energy share to 4.7 % in 2014, largely

supported by EU-funded photovoltaic schemes.

These schemes will continue through to 2020. This

is above the indicative trajectory towards the 2020

target but significant further renewables

deployment will be needed to achieve the target.

Malta has launched a process to update its National

Renewable Energy Action Plan accordingly. The

consultative document prepared for the action

plan, however, points to a limited domestic

potential for renewable energy.

3.5.3. TRANSPORT

Despite improvements, road infrastructure is

under heavy pressure and often highly

congested. Congestion is a major challenge to

sustainable development in Malta. The external

cost of traffic congestion has been estimated at 274

million euros per year for 2012 (University of

Malta, 2015) and projected to rise significantly if

there are no policy changes (Transport Malta,

2016a and 2016b) (46

). In addition, this situation

has considerable environmental impacts as well.

The authorities have introduced relevant measures,

such as stimulating public transport usage,

incentives for cleaner cars and addressing school

transport, however congestion remains high.

The government adopted an ambitious National

Transport Strategy with a 2050 horizon and an

Operational Transport Master Plan to 2025.

The estimated budget is 231 million euros for

2016-2020 and an additional 397 million euros for

2021-2025. The adoption of the Strategy and

Master Plan was an ex-ante conditionality for

unlocking ESIF funding to the transport sector.

The Strategy and Master Plan are comprehensive

while also putting significant emphasis on the

challenges of road congestion and climate change

(see Table 3.5.1). The documents include (the

(46) This includes the opportunity costs of time and fuel wasted

in congested traffic, accidents, air pollution, greenhouse gas emissions and noise.

continuation of) a diverse set of measures such as

infrastructure works, intelligent transport systems,

fleet renewal, modal shift and incentives for

behavioural change. While these measures are

projected to make significant improvements

compared to business as usual, congestion is still

projected to rise and greenhouse gas emissions

from transport to decrease only modestly until

2030. (47

)

Table 3.5.1: Selected targets of National Transport Strategy

and Operational Transport Master Plan

* still subject to change due to ongoing analysis of CO2

emissions from transport

Source: Transport Malta

3.5.4. ENVIRONMENT AND RESOURCE

EFFICIENCY

Improving resource efficiency is key for

sustainable growth given the very limited

available resources. (48

) Both water and waste

management are urgent concerns. There is ample

scope to improve waste performance since the

waste recovery rate is still one of the lowest in the

EU (49

). The Commission has provided a roadmap

for compliance in which economic instruments

(47) It should be noted that there are several other measures

contained in the Transport Master plan which would also have a positive impact on GHG reduction. These measures

could not be inputted into the Transport Model in order to quantify their individual and cumulative impacts because

the respective policies or measures had not been developed

to a sufficient level of detail to enable accurate modelling. (48) Malta has announced that it will contribute towards the

circular economy and sustainability agendas, and is

currently implementing its Green Economy Strategy and Action Plan of Malta (adopted December 2015).

(49) At the same time, the share of toxic waste in total waste

remains well below the EU average. The landfilling rate of municipal waste (88 %) is much higher than the EU

average of 28 %. In addition, the recycling and composting

rate of municipal waste (12%) remains below the EU average (44 %) and the 2020 target (50 %) (Eurostat,

http://ec.europa.eu/eurostat/web/waste/transboundary-

waste-shipments/key-waste-streams/municipal-waste).

Starting point Master Plan Strategy

2015 2025 2030

14.4km 19km 20.8km

29.8km 46km 60.9km

14.8km/h 17.5km/h 20km/h

99.9% 80% 50%

532 ktCO2

equiv.

527 ktCO2

equiv.

525 ktCO2

equiv.57% 47% 41%

8% 11% 15%

292 (2014) 235 204

Modal share of non-motorised trips

Road accident grievous injuries

TEN-T core network

TEN-T Comprehensive network

Bus average speed at AM peak

Conventionally-fuelled cars

Non-ETS GHG emissions from transport*

Share of car drivers (relative to 1990 level)

3.5. Sectoral policies

31

play a crucial role (50

). The government is also

taking up the challenge of sustainable water

management, in particular on addressing the over-

abstraction from the scarce water reserves and

nitrate pollution. (51

) Important economic activities

on the islands, such as tourism, crucially depend

on a stable water supply.

(50) Support to Implementation – Municipal Waste, available at

http://ec.europa.eu/environment/waste/framework/support_implementation.htm

(51) In 2014-2020 the European Structural and Investment

Funds will contribute some 87 million euro for improving the efficiency and quality of the water supply and water

management and conservation system.

32

3.6.1. EFFICIENCY OF THE PUBLIC

ADMINISTRATION

Public sector efficiency is higher than

neighbouring Member States, but performs

below potential and the EU average. According

to the Institutional Delivery Indicator (52

), Malta

performs relatively well compared with other

neighbouring Member States although it has not

showed a net improvement in the last ten years

(see Graph 3.6.1) (53

). Still, an overall average

rating on public administration, as per the 2016

Small Business Act Fact Sheet, suggests that Malta

is performing well below its potential, especially

given its small size without a complex regional set-

up.

Graph 3.6.1: Institutional delivery indicator, Malta and

neighbouring Member States

Source: World Bank Governance Indicators

The business environment continues to be

burdened by inefficient administrative

procedures. (54

) According to the 2017 World

(52) The Institutional Delivery Indicator is an arithmetic

average of four components of the Governance Indicators:

Government Effectiveness, Regulatory Quality, Rule of

Law and Control of Corruption as defined by K. Masuch, E. Moshammer, B. Pierluigi (2016). The indicator, which

takes values between +2.5 and -2.5, captures how well

national administrative and governmental institutions are able to deliver a level playing field for all economic actors.

(53) This evolution is consistent with the findings of Fernandez-

Villaverde (2013) who concludes that the windfall gains of EMU accession and the inflows of capital they imply,

discourage the introduction of new reforms.

(54) The effective impact of these barriers on the birth rates is hard to measure. Until 2013, Malta presented a low firm

birth rate (Eurostat, 2016a) but a new time series shows

Bank Doing Business report, starting a new

business is hampered by numerous procedures,

even though the actual cost does not seem

excessively high. As a result, the environment for

starting a business ranks 132nd

position out of 190

countries, worsening marginally compared to the

previous year (where it ranked 131st). Other

administrative obstacles to the operation of

businesses include getting electricity connections,

despite recent improvements, and construction and

other permits. The relative ranking of dealing with

construction permits worsened, despite some

improvement in terms of costs. The procedures are

relatively cumbersome and numerous. Altogether,

there are 15 procedures and they take an estimated

167 days to complete them.

Malta is a leading EU Member State in the

supply of e-government facilities. There is a

broad range of services offered to citizens to

interact with the national administration. This is in

contrast with the relatively high complexity and

burdens that certain administrative procedures

entail. In addition, Malta compares favourably in

other aspects that are important for business such

as tax procedures and the predictability of the

national administration.

Several measures were recently implemented to

simplify the procedural burden of starting new

businesses (European Commission, 2016g). (55

)

In the first half of 2016, the national authorities

implemented the first and second phases of a

radical simplification reform of the bureaucratic

processes for entrepreneurs. This reform entails the

identification and simplification of all

administrative processes from the start-up phase to

closure through internet-based applications. The

first phase targets specifically the setting up of a

business by a self-employed or a company. As a

result, new companies could start operating within

two or three days by filling out a short electronic

form on an online portal following a two-steps

procedure (56

). Also the total cost for the applicant

considerable differences with the past figures for 2014. It is

also worth noting that Malta has the highest rate of firms with high-growth potential in the EU (Eurostat, 2016b).

(55) These reforms are not included in the Starting a business

indicator of the World Bank Doing Business Indicators

since they were introduced after June 2016, the reference

date for the 2017 publication.

(56) This implies a considerable reduction in the procedural burden as, according to the World Bank ‘Doing Business’

0

0.2

0.4

0.6

0.8

1

1.2

1.4

05 10 15

CY EL IT ES MT

3.6. PUBLIC ADMINISTRATION

3.6. Public administration

33

is reduced to 100 euros. In addition, Maltese

residents setting up as self-employed could start

operations by following a simple, no cost one-step

procedure on the start-up portal that takes only one

day. The second phase of the reform extends these

facilities to foreign nationals and partnerships.

This simplification includes repealing the

requirement of a Trade Licence and a significant

reduction of the time to obtain services (estimated

at around 50 %). A third phase, which should be

completed by the first quarter of 2017, will focus

on the tail-end of the life of a business, implying

further simplification.

A second important simplification measure

followed the effective introduction of a College

of Regulators. This new body is directly attached

to the Office of the Prime Minister. It was

announced in 2011 but became fully operational

only recently with the appointment of the

Members of the Board. Among other functions, it

will conduct ex post audits to verify that

simplification reforms are effective and inform on

new proposals ensuring the systematic application

of the SME test. The government committed only

in 2015 to subject all relevant legislative acts to a

SME test, although the test was already enshrined

in the 2011 Malta Small Business Act. Since then,

the number of fully executed tests has been very

limited and not all relevant legislations - such as

those announced in the annual budget speech - are

subjected to the test.

Structural changes were introduced to increase

the efficiency of the planning authorisation

process. This is achieved mainly by splitting the

Malta Environment and Planning Authority

(MEPA) into two agencies: one dealing with

environmental protection and the other with spatial

planning (57

). As mentioned before, the impact of

construction permits and licenses was identified as

a barrier to investment in construction. The de-

merger of the MEPA is already effective and aims

at reducing the time for planning applications from

over 210 to 100 days. In the first few months since

the split, this target has been achieved as the actual

average number of days for authorisations is 100

report and to the SBA Factsheets (European Commission,

2016h), the number of procedures to start a new business in Malta was 10.

(57) The two agencies are the Planning Authority (PA) and the

Environment Resources Authority (ERA).

days. When legal periods of inactivity and the time

that applications remain suspended by the

applicant / architect are removed, this would result

in an even shorter processing timeframe. .

Graph 3.6.2: Public Administration Responsiveness to SME

needs - Malta 2015 -Variation with respect to

EU average (in number of standard deviations)

Data bars pointing right show better performance than the

EU average; data bars pointing left show weaker

performance than the EU average

1 - Time to start a business

2 - Cost of starting a business

3 - Paid-in minimum capital

4 - Time required to transfer property

5 - Cost required to transfer property

6 - Number of tax payments per year

7 - Time it takes to pay taxes

8 - Cost of enforcing contracts

9 - Fast-changing legislation and policies are a problem for

doing business

10 - The complexity of administrative procedures is a

problem for doing business

11 - SMEs interacting online with public authorities

12 - Licenses and permit systems

13 - Start-up procedures

14 - Burden of government regulations

Source: European Commission (2016b)

3.6.2. JUDICIAL SYSTEM

Rigid insolvency regulations hinder the quality

of the business environment. The cost of

enforcing contracts, the cost and duration of

insolvency and bankruptcy procedures and the

lending rights are included in a second main group

of issues that still harm the quality of the business

environment in Malta. These problems stem from

regulations, institutional weaknesses and

administrative practices. Minor improvements

were registered in the resolution for insolvency

-2.5 -1.5 -0.5 0.5

14

13

12

11

10

9

8

7

6

5

4

3

2

1

3.6. Public administration

34

and no progress in contract enforcements. The

legal framework on restructuring proceedings is

ineffective and does not permit a timely

intervention and early restructuring. These

deficiencies have a negative impact on the

entrepreneurship capacity of local firms by

limiting the options for a second chance to those

firms that encountered difficulties in the past. This

places Malta at the bottom of the EU ranking in

this area according to the EU Annual report on

European SMEs 2015-2016 and the 2017 World

Bank Doing Business report. Malta presents very

low recovery rates as a percentage of the total

assets, a weak legislation and very long time

delays for the resolution of insolvency

proceedings.

New measures on second chance and insolvency

have been proposed by the government. To

address the shortcomings, a draft amendment to

the Companies act introducing considerable

changes to the legal framework on insolvency,

such as the possibility of mediation, was tabled

and is currently being considered by the national

Parliament. The proposed initiative includes the

creation of a fund that will finance certified

controllers under a well-defined system- registry-

that will assist the reconstruction of a company.

The appointment of the controller will be by the

judiciary. This will allow for a mechanism of early

intervention for companies in difficulties that will

reduce the burden of costly bankruptcy procedure

rules, especially to SMEs. The impact of these

changes in their final scope and formulation

remains to be analysed.

There have been improvements in the efficiency

of the judicial system. According to the 2017 EU

Justice Scoreboard, clearance rate for

administrative cases increased from 28.6 % in

2010 to 410.7 % in 2015. Disposition time for both

first instance administrative cases and for total of

first instance (other than criminal) cases decreased

respectively from 2 758 days in 2010 to 495 days

in 2015 and from 866 days in 2010 to 447 in 2015.

However, disposition time for these cases and

litigious civil and commercial cases remain high.

These positive developments are also reflected in

the reduction of backlogs: in first instance courts in

2014 the number of (other than criminal) pending

cases was 10 845, reduced to 9 459 in 2015. On

the quality of the justice system, there is room for

improvement on the training for judges. Many

aspects of the civil procedure have been

modernised by the adoption of Act IV in

September 2016. (58

) The system of Court

Attorneys for assisting judges is almost fully

operational one year following its adoption and,

according to Maltese authorities, it started having a

positive effect including on the further reduction of

backlogs.

The implementation of judicial reforms has

continued. The reform aims to improve the system

of the appointment of judges and remedy the

persisting shortcomings of the judiciary, in

particular lengthy procedures and backlogs. A law

was adopted on 5 August 2016 on the appointment

and disciplinary procedures of the members of the

judiciary. The law establishes a Judicial

Appointment Committee that scrutinises the

nomination of a candidate to be made Magistrate

or Judge. The Cabinet retains discretion over

whose appointment to propose to the President of

the Republic, as long as the candidate is deemed

suitable by the Judicial Appointment Committee.

The composition of the Judicial Appointments

Committee comprises one out of the five members

drawn from the judiciary, while the independence

of two other Members (the Ombudsman and the

Auditor general) is safeguarded. (59

) The

functioning of the new system in practice will need

to be followed.

(58) This Act aims at increasing the competence of the Courts

of Magistrates, increasing the competence of the Small Claims Tribunal, extending possibilities for summary

procedures as regards claims and simplifying the service of

documents including by electronic means and modernising

appeal proceedings

(59) Until that point, there was no judicial appointment

committee and judges were appointed directly by the President of the Republic on the advice of the Prime

Minister.

35

2016 country-specific recommendations (CSRs)

CSR 1

In view of the high risk of a significant

deviation, achieve an annual fiscal adjustment

of 0.6 % of GDP towards the medium-term

budgetary objective in 2016 and in 2017, by

taking the necessary structural measures.

Step up measures to ensure the long-term

sustainability of public finances.

Malta has made limited progress in addressing

CSR1 (this overall assessment of CSR 1 does not

include an assessment of compliance with the

Stability and Growth Pact).

Malta has made limited progress in

improving the sustainability of public

finances. The Draft Budgetary Plan reports on

the initiatives to address the fiscal structural

country specific recommendations, although

no new elements are reported compared to the

situation in spring. In particular, in the area of

pension reform, some measures were

introduced already with the 2016 budget,

targeted at addressing sustainability and

adequacy. A full assessment of the budgetary

impact is still missing, but initial assessments

show that measures to achieve sustainability

are not yet as ambitious as to respond to the

long term challenges. In addition, the 2017

budget introduced a number of new measures

targeted at increasing pension income. Policy

action to improve the sustainability of the

healthcare system is ongoing. However, it is

uncertain whether these measures are

sufficient to cope with the challenge of long-

term sustainability. An estimate of their

potential impact to be incorporated into the

long-term budgetary projections is still

(60) The following categories are used to assess progress in implementing the 2016 country-specific recommendations:

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. Below a number of

non-exhaustive typical situations that could be covered under this, to be interpreted on a case by case basis taking into account

country-specific conditions: • no legal, administrative, or budgetary measures have been announced in the National Reform Programme or in other official

communication to the national Parliament / relevant parliamentary committees, the European Commission, or announced in

public (e.g. in a press statement, information on government's website); • no non-legislative acts have been presented by the governing or legislator body;

• the Member State has taken initial steps in addressing the CSR, such as commissioning a study or setting up a study group to analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions),

while clearly-specified measure(s) to address the CSR has not been proposed.

Limited progress: The Member State has: • announced certain measures but these only address the CSR to a limited extent;

and/or

• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative further work is needed before the CSR will be implemented;

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR.

Some progress: The Member State has adopted measures that partly address the CSR and/or

the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as

only a few of the adopted measures have been implemented. For instance: adopted by national parliament; by ministerial decision; but no implementing decisions are in place.

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have

been implemented. Full implementation: The Member State has implemented all measures needed to address the CSR appropriately.

ANNEX A

Overview Table

Commitments Summary assessment(60

)

A. Overview Table

36

missing.

CSR 2

Take measures to strengthen labour supply, in

particular through increased participation of

low-skilled persons in lifelong learning.

Malta has made some progress in addressing

CSR2.

Malta has made some progress in

strengthening labour supply by improving

access and participation in lifelong learning,

with a focus on the low-skilled. The National

Lifelong Learning Strategy is under

implementation, with relevant upskilling and

reskilling initiatives. Literacy, numeracy and

IT courses are offered in the community,

including through cooperation with Local

Councils and LEAP centres. ( ) Free of charge

revision classes are provided to those who

failed or were absent for their examination.

Besides the Alternative Learning Programme,

two other programmes are offered to students

who at the end of compulsory education

acquire no or minimum qualifications: ‘Youth

Inc.’ and ‘GEM16+’. Malta is working to

increase access to second chance education

for those with no formal secondary education

certificate, through the Malta College of Arts,

Science and Technology (MCAST). In 2016 a

programme called Skills Kits which offers

more flexible and customised pathways was

launched. Counselling and orientation is

provided for students in education through

VET and higher education. In addition

services are available to unemployed within

Public Employment Services. However, less

attention is given to those already in

employment.

Europe 2020 (national targets and progress)

Employment rate target: 70% 67.8% in 2015, up from 66.4% in 2014.

Early school leaving target: 10% 19.8% in 2015, down from 20.3% in 2014.

Tertiary education target: 33% 27.8% in 2015, up from 26.5% in 2014.

At risk of poverty target in numbers of persons:

Lifting 6,560 individuals from the risk of poverty

or social exclusion

94,000 at risk of poverty or social exclusion, a

decrease of 5,000 persons in comparison to 2014

In absolute terms – 14,00 more people are at risk

of poverty or social exclusion in 2015 than in

A. Overview Table

37

2008

Greenhouse gas (GHG) emissions target:

+ 5% in 2020 compared to 2005 (in sectors

outside the scope of the Emissions Trading

Scheme)

2020 target: +5%

According to the latest national projections

submitted to the Commission, and taking into

account existing measures, it is expected that the

target will be achieved: -16% in 2020 as

compared with 2005 (margin of 21 percentage

points)

Non-ETS 2015 target: 6%.

Greenhouse gas emissions from sectors not

covered by the Emissions Trading Scheme

increased by 25% between 2005 and 2015.

2020 Renewable energy target: 10% of gross final

energy consumption

4.7% in 2014, up from 3.7% in 2013.

Preliminary estimates for 2015 indicate

appropriate progress towards the 2020 target,

putting the ratio at 5.3%.

National energy efficiency target: reducing

primary energy consumption by 0.726 Mtoe and

final energy consumption by 0.547 Mtoe

Malta reduced its primary energy consumption

by -14.9% from 0.88 Mtoe in 2014 to 0.75 Mtoe

in 2015. Final energy consumption increased by

5% from 0.54 Mtoe in 2014 to 0.57 Mtoe in 2015

R&D target: 2% of GDP 0.77% of GDP in 2015 (provisional data)

Notwithstanding the efforts made, Malta has

moved away from its 2020 target in recent years,

partly due to the increasing GDP.

38

ANNEX B

MIP Scoreboard

Table B.1: The MIP scoreboard for Malta

p: provisional. na: not available.

Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective

Exchange Rate), and International Monetary Fund

Thresholds 2010 2011 2012 2013 2014 2015

Current account balance,

(% of GDP) 3 year average -4%/6% -4.1 -3.8 -1.1 1.4 3.8 4.3

-35% 12.1 6.2 19.5 20.2 41.3 48.5

Real effective exchange

rate - 42 trading partners,

HICP deflator

3 years % change ±5% & ±11% -0.7 -5.0 -7.6 -1.3 0.1 -0.2

Export market share - %

of world exports5 years % change -6% 38.3 18.2 13.0 -0.7 -16.6 -8.8

Nominal unit labour cost

index (2010=100)3 years % change 9% & 12% 9.2 10.5 8.0 9.0 7.2 3.9

6% -1.1 -3.5 0.6 -1.5 2.4 2.8p

14% 6.8 7.2 0.4 2.7 7.4 5.4

133% 162.0 158.5 153.6 146.6 146.7 139.1

60% 67.6 70.0 67.6 68.4 67.0 64.0

Unemployment rate 3 year average 10% 6.6 6.7 6.5 6.4 6.2 5.9

16.5% 12.4 10.9 6.2 1.7 6.3 1.3

-0.2% 1.6 2.7 3.7 4.6 4.5 4.5

0.5% 0.4 0.4 0.2 -0.2 -0.3 -0.7

2% -0.3 1.6 -0.4 -0.2 -1.6 -2.3

Activity rate - % of total population aged 15-64 (3 years

change in p.p)

Long-term unemployment rate - % of active population

aged 15-74 (3 years change in p.p)

Youth unemployment rate - % of active population aged

15-24 (3 years change in p.p)

External imbalances

and competitiveness

New employment

indicators

Net international investment position (% of GDP)

Deflated house prices (% y-o-y change)

Total financial sector liabilities (% y-o-y change)

Private sector credit flow as % of GDP, consolidated

Private sector debt as % of GDP, consolidated

General government sector debt as % of GDP

Internal imbalances

39

ANNEX C

Standard Tables

Table C.1: Financial market indicators

(1) Latest data Q2 2016. (2) Quarterly values are not annualised. * Measured in basis points.

Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all

other indicators).

2011 2012 2013 2014 2015 2016

Total assets of the banking sector (% of GDP) 746.9 742.5 656.2 650.4 539.3 496.7

Share of assets of the five largest banks (% of total assets) 72.0 74.4 76.5 81.5 81.3 -

Foreign ownership of banking system (% of total assets) 33.1 30.9 24.3 17.7 17.3 -

Financial soundness indicators:(1)

- non-performing loans (% of total loans) 1.5 1.7 2.0 3.2 2.9 2.8

- capital adequacy ratio (%) 54.6 51.9 46.4 25.1 21.2 23.2

- return on equity (%)(2) 3.2 4.7 3.7 4.4 6.3 4.3

Bank loans to the private sector (year-on-year % change) 3.0 3.5 -7.4 10.0 0.7 6.3

Lending for house purchase (year-on-year % change) 8.6 6.8 6.2 9.6 8.6 7.0

Loan to deposit ratio 94.5 89.8 73.7 66.4 63.0 62.9

Central Bank liquidity as % of liabilities 2.6 2.5 1.9 0.9 0.3 0.1

Private debt (% of GDP) 159.4 154.6 147.3 140.9 132.2 -

Gross external debt (% of GDP)(1)

- public 6.1 8.2 8.5 7.3 6.7 6.9

- private 702.3 713.2 708.5 716.4 688.1 628.6

Long-term interest rate spread versus Bund (basis points)* 188.1 263.1 179.3 144.8 99.2 81.6

Credit default swap spreads for sovereign securities (5-year)* 253.2 346.2 215.8 208.5 208.5 208.7

C. Standard Tables

40

Table C.2: Labour market and social indicators

(1) The unemployed persons are all those who were not employed but had actively sought work and were ready to begin

working immediately or within 2 weeks.

(2) Long-term unemployed are those who have been unemployed for at least 12 months.

(3) Not in education employment or training.

(4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally

adjusted.

Source: European Commission (EU Labour Force Survey).

2011 2012 2013 2014 2015 2016 (4)

Employment rate

(% of population aged 20-64)61.6 63.1 64.8 66.4 67.8 69.4

Employment growth

(% change from previous year)2.9 2.5 3.7 5.1 3.5 3.5

Employment rate of women

(% of female population aged 20-64)43.8 46.6 49.8 52.0 53.6 55.2

Employment rate of men

(% of male population aged 20-64)79.0 79.2 79.4 80.4 81.4 83.0

Employment rate of older workers

(% of population aged 55-64)33.2 34.7 36.3 37.8 40.3 43.7

Part-time employment (% of total employment,

aged 15-64)12.6 13.2 14.2 15.5 14.5 14.0

Fixed-term employment (% of employees with a fixed term

contract, aged 15-64)6.5 6.8 7.5 7.7 7.4 7.4

Transitions from temporary to permanent employment 67.2 2.2 25.4 10.6 8.6 -

Unemployment rate(1)

(% active population,

age group 15-74)6.4 6.3 6.4 5.8 5.4 4.9

Long-term unemployment rate(2)

(% of labour force) 3.0 3.1 2.9 2.7 2.4 2.0

Youth unemployment rate

(% active population aged 15-24)13.3 14.1 13.0 11.7 11.8 10.6

Youth NEET(3)

rate (% of population aged 15-24) 10.2 10.6 9.9 10.5 10.4 -

Early leavers from education and training (% of pop. aged 18-24

with at most lower sec. educ. and not in further education or

training)

22.7 21.1 20.5 20.3 19.8 -

Tertiary educational attainment (% of population aged 30-34

having successfully completed tertiary education)23.4 24.9 26.0 26.5 27.8 -

Formal childcare (30 hours or over; % of population aged less

than 3 years)4.0 1.0 3.0 6.0 - -

C. Standard Tables

41

Table C.3: Labour market and social indicators (continued)

(1) People at risk of poverty or social exclusion : individuals who are at risk of poverty and/or suffering from severe material

deprivation and/or living in households with zero or very low work intensity.

(2) At-risk-of-poverty rate : proportion of people with an equivalised disposable income below 60 % of the national

equivalised median income.

(3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay

their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein

equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing

machine, viii) have a colour TV, or ix) have a telephone.

(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the

adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.

(5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007

survey refers to 2006 incomes)

Source: ESSPROS (for expenditure for social protection benefits), EU-SILC (for social inclusion)

Expenditure on social protection benefits (% of GDP) 2010 2011 2012 2013 2014 2015

Sickness/healthcare 6.0 5.8 5.9 6.0 6.2 :

Disability 0.8 0.7 0.7 0.7 0.7 :

Old age and survivors 10.2 9.9 10.2 9.8 9.7 :

Family/children 1.2 1.2 1.1 1.2 1.2 :

Unemployment 0.5 0.5 0.5 0.6 0.5 :

Housing 0.2 0.2 0.1 0.1 0.1 :

Social exclusion n.e.c. 0.3 0.3 0.3 0.3 0.3 :

Total 19.1 18.6 18.8 18.6 18.8 :

of which: means-tested benefits 2.5 2.5 2.4 2.4 2.5 :

Social inclusion indicators 2010 2011 2012 2013 2014 2015

People at risk of poverty or social exclusion1

(% of total population)21.2 22.1 23.1 24.0 23.8 22.4

Children at risk of poverty or social exclusion

(% of people aged 0-17) 26.7 27.8 31.0 32.0 31.3 28.2

At-risk-of-poverty rate2 (% of total population) 15.5 15.6 15.1 15.7 15.9 16.3

Severe material deprivation rate3 (% of total population) 6.5 6.6 9.2 9.5 10.2 8.1

Proportion of people living in low work intensity households4 (% of

people aged 0-59)9.2 8.9 9.0 9.0 9.8 9.2

In-work at-risk-of-poverty rate (% of persons employed) 5.9 6.1 5.2 5.9 5.7 5.4

Impact of social transfers (excluding pensions) on reducing poverty 34.0 32.8 37.1 32.6 33.2 31.2

Poverty thresholds, expressed in national currency at constant prices5 5832 5949 6116 6259 6554 6863

Gross disposable income (households; growth %) : : : : : :

Inequality of income distribution (S80/S20 income quintile share ratio) 4.3 4.0 3.9 4.1 4.0 4.2

GINI coefficient before taxes and transfers 44.2 43.8 44.4 45.5 45.7 :

GINI coefficient after taxes and transfers 28.6 27.2 27.1 27.9 27.7 :

C. Standard Tables

42

Table C.4: Product market performance and policy indicators

(1) The methodologies, including the assumptions, for this indicator are shown in detail at :

http://www.doingbusiness.org/methodology.

(2) Average of the answer to question Q7B_a. '[Bank loan]: If you applied and tried to negotiate for this type of financing over

the past six months, what was the outcome?'. Answers were scored as follows: zero if received everything, one if received

most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is

still pending or if the outcome is not known.

(3) Percentage population aged 15-64 having completed tertiary education.

(4) Percentage population aged 20-24 having attained at least upper secondary education.

(5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are

shown in detail at : http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm

(6) Aggregate OECD indicators of regulation in energy, transport and communications.

Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for

the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans).

Performance indicators 2010 2011 2012 2013 2014 2015

Labour productivity (real, per person employed, year-on-year %

change)

Labour productivity in industry - - - - - -

Labour productivity in construction - - - - - -

Labour productivity in market services - - - - - -

Unit labour costs (ULC) (whole economy, year-on-year % change) - - - - - -

ULC in industry - - - - - -

ULC in construction - - - - - -

ULC in market services - - - - - -

Business environment 2010 2011 2012 2013 2014 2015

Time needed to enforce contracts(1)

(days) - 505.0 505.0 505.0 505.0 505.0

Time needed to start a business(1)

(days) - 38.5 38.5 38.5 33.5 28.0

Outcome of applications by SMEs for bank loans(2) - 0.69 - 0.68 0.58 0.40

Research and innovation 2010 2011 2012 2013 2014 2015

R&D intensity 0.62 0.67 0.83 0.77 0.75 0.77

Total public expenditure on education as % of GDP, for all levels of

education combined6.74 7.96 6.76 6.89 - -

Number of science & technology people employed as % of total

employment33 36 37 38 37 37

Population having completed tertiary education(3) 14 15 16 17 18 18

Young people with upper secondary education(4) 73 74 76 77 76 78

Trade balance of high technology products as % of GDP 0.64 0.03 1.83 -1.10 -3.45 -3.49

Product and service markets and competition 2003 2008 2013

OECD product market regulation (PMR)(5)

, overall - - 1.57

OECD PMR(5)

, retail - - 1.09

OECD PMR(5)

, professional services - - 1.66

OECD PMR(5)

, network industries(6) - - 2.28

C. Standard Tables

43

Table C.5: Green growth

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices)

Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)

Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)

Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)

Waste intensity: waste (in kg) divided by GDP (in EUR)

Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP

Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP

Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %

change)

Real unit energy cost: real energy costs as a percentage of total value added for the economy

Environmental taxes over labour taxes and GDP: from European Commission's database, ‘Taxation trends in the European

Union’

Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)

Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for

manufacturing sectors

Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP

Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures

excl. VAT.

Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste

Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP

Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse gas

emissions

(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency.

Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value

added (in 2005 EUR)

Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector

Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of

international bunker fuels

Aggregated supplier concentration index: covers oil, gas and coal. Smaller values indicate larger diversification and hence

lower risk.

Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies

and solid fuels

* European Commission and European Environment Agency

Source: European Commission (Eurostat) unless indicated otherwise

Green growth performance 2010 2011 2012 2013 2014 2015

Macroeconomic

Energy intensity kgoe / € 0.14 0.14 0.14 0.12 0.11 0.09

Carbon intensity kg / € 0.55 0.56 0.56 0.48 0.44 -

Resource intensity (reciprocal of resource productivity) kg / € 0.51 0.65 0.73 0.62 0.78 0.81

Waste intensity kg / € 0.24 - 0.25 - 0.25 -

Energy balance of trade % GDP 1.1 -2.8 -12.2 -9.2 -14.9 -

Weighting of energy in HICP % 6.28 6.65 7.31 7.57 8.05 7.40

Difference between energy price change and inflation % 27.1 0.4 -2.0 -1.6 -17.0 -8.7

Real unit of energy cost% of value

added4.8 6.4 6.5 5.7 5.4 -

Ratio of environmental taxes to labour taxes ratio 0.28 0.28 0.26 0.24 0.25 -

Environmental taxes % GDP 2.9 3.0 2.8 2.7 2.9 -

Sectoral

Industry energy intensity kgoe / € - - - - - -

Real unit energy cost for manufacturing industry excl.

refining

% of value

added5.9 10.0 9.4 9.7 8.0 -

Share of energy-intensive industries in the economy % GDP - - - - - -

Electricity prices for medium-sized industrial users € / kWh 0.18 0.18 0.18 0.18 0.18 0.15

Gas prices for medium-sized industrial users € / kWh - - - - - -

Public R&D for energy % GDP 0.00 0.00 0.00 0.00 0.00 0.00

Public R&D for environmental protection % GDP 0.00 0.00 0.00 0.00 0.00 0.00

Municipal waste recycling rate % 5.2 11.4 12.1 8.1 7.4 6.3

Share of GHG emissions covered by ETS* % 60.6 60.2 61.8 57.6 55.7 39.2

Transport energy intensity kgoe / € - - - - - -

Transport carbon intensity kg / € - - - - - -

Security of energy supply

Energy import dependency % 99.0 101.3 101.0 104.1 97.7 97.3

Aggregated supplier concentration index HHI 0.0 0.0 0.0 0.0 0.0 -

Diversification of energy mix HHI 0.99 0.98 0.98 - - -

44

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Central Bank of Malta (2016b), Annual Report 2015.

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References

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